Documentof The World BankGroup FOROFFICIAL USE ONLY Report No. 32956-DZ INTERNATIONAL BANKFORRECONSTRUCTIONAND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION COUNTRYASSISTANCE STRATEGY PROGRESSREPORT FOR PEOPLE'S DEMOCRATICREPUBLIC OF ALGERIA FORTHE PERIOD 2004-06 July 27,2005 Maghreb Country Management Unit MiddleEast and NorthAfrica Region The InternationalFinance Corporation MiddleEast and NorthAfrica Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contentsmay not otherwisebe disclosedwithout World Bank authorization. Thedate ofthe last Country Assistance Strategyfor Algeria (report 25828) was June 12,2003 CURRENCYAND EQUIVALENTS US1=73.743 DZD FISCAL YEAR January 1-December 31 ABBREVIATIONSAND ACRONYMS AP Algerie Poste MTEF MediumTerm ExpenditureFramework ARPT Agencede Regulationdes Postes et des Telecommunications NAED North Africa EnterpriseDevelopment AT Algerie Telecommunications NEAP National EnvironmentalAction Plan CAS CountryAssistanceStrategy NGOs Non-Gouvemmental Organizations CFAA Country FinancialAccountability Assessment OED OperationsEvaluationDepartment CNED Caisse Nationaled'Equipement et Developpement ONS Office National des Statistiques CPA Credit Populaired'Algerie PCSCE ProgrammeCompltmentairede Soutien a la CroissanceEconomique CPI ConsumerPrice Index PES Public Enterprises CPAR Country ProcurementAssessment Review PEP-MENA Private EnterprisePartnershipMiddle East andNorth Africa DGRFE Direction Gnerale des Relations Financikres Extheures PER Public ExpenditureReview DNA DesignatedNationalAuthority PNAE-DD ProgrammeNational d'Action pour I'Environnement et le DeveloppementDurable DPR DevelopmentPolicy Review PNDA PlanNational de DeveloppementAgricole EU EuropeanUnion PPP Private Public Partnership EIB EuropeanInvestmentBank PSRE Programmede Soutiena la Relance Economique EMTAL Energy& MiningTechnicalAssistance Loan PROGDES Programmede Gestiondes Dechets Solides ERP Economic RecoveryProgram QAG Quality Assurance Group ESW Economic and Sector Work RAMP ReservesAdvisory And ManagementProgram EWM East West Motorway RTA ReimbursableTechnical Assistance FDI Foreign Direct Investment REER Real Effective ExchangeRate FIAS Foreign InvestmentAdvisory Services ROSC Reviewof Standards and Costs FSAP FinancialSector AssessmentProgram RTGS Real-TimeGross Settlement GDLN GlobalDevelopmentLearningNetwork SMEs Small & MediumEnterprises GDP Gross DomesticProduct SONATRACH EntrepriseNationalede Recherche, d'Exportation et de Commercialisationdes Hydrocarbures GGFR GlobalGas Flaring Reduction SONELGAZ Societt Nationalede I'Electricite et du Gaz ICA InvestmentClimateAssessment TA Technical Assistance ICT Information,Communication, and Technology UNDP United Nation DevelopmentProgram IFC InternationalFinanceCorporation WBI World Bank Institute IMF InternationalMonetaryFund WHO World HealthOrganization IPCP IndustrialPollution ControlProject WTO World Trade Organization MNA Middle East and North Africa MEDA MediterraneanEuropeanDevelopmentAgreement METAP MediterraneanEnvironmentalTechnical Assistance Program FOROFFICIAL USEONLY MANAGERSAND STAFFRESPONSIBLEFORTHIS CASPR The World Bank Vice President : Christian Poortman, MNAVP Country Director : TheodoreAhlers, MNCOl Task Manager : Yves Duvivier, MNCDZ TheInternational Finance Corporation Vice President : Assaad Jabre, CIOVP Country Director : Sami Haddad, CMERC Task Manager : Houria Sammari, CMEPN The preparation o f this CAS Progress Report has been a team effort, which included hands-on involvement and thorough contribution o f the extended Algeria country team, including our IFC colleagues, as well as staff from other units o f the World Bank Group. Many team members and other staff made substantial contributions - in drafting parts o f this document, inparticipating in meetings, in providing comments and advice, or reviewing translations into French, to jointly prepare the progress report presentedhere. Although it i s difficult to name them all, they are all to be thanked and congratulated for their excellent collaboration and teamwork. A special thanks goes to JosC R. Lopez Calix, Lead Country Economist for Algeria, Omar Lassel, Consultant (who prepared a comprehensive review inthe field o f the status o freforms inAlgeria since 2003), each and every o f the Task Team Leaders who prepared an extensive update o f Algeria's progress in their respective sector, andMicheline FaucomprC, for finalizing the CAS package for the Board. This document has a restricted distribution and may be usedby recipients only in the performance of their official duties. I t s contents may not be otherwisedisclosed without World Bank authorization. TABLEOFCONTENTS I COUNTRYCONTEXT................................................................................................................. . 1 A. Introduction................................................................................................................................ 1 B. Recent Political andEconomic Developments .......................................................................... 1 I1 . PROGRESSINIMPLEMENTATIONOF THE CAS............................................................... 2 I11 . CONTINUING CHALLENGESAND BANK GROUPSTRATEGYFOR ALGERIA....................................................................................................................................... 7 A. Development Challenges and Government Program................................................................. 7 B BankGroup Support to Algeria for 2005-06.............................................................................. . 8 C. Risks......................................................................................................................................... 10 Annex IRecentEconomicDevelopmentsandCurrent Outlook........................................................ . 11 Annex I1 Progressof Reforms and CASImpact So Far...................................................................... . 14 Annex I11IFC Activities.......................................................................................................................... 21 . Annex I V Bank Supportto Algeriafor 2005-06 .................................................................................. . 25 Annex V Portfolio andCAS Annex Tables........................................................................................... 29 . Annex Al: Algeria At a Glance.................................................................................................... 29 Annex B2: Selected Indicators o f Bank Portfolio Performance and Management........................ 31 Annex B3: IBRD/IDAProgram Summary .................................................................................... 32 Annex B3: I F C M I G A Program Summary.................................................................................... 33 Annex B4: Summary o f N o n Lending Services............................................................................. 34 Annex B5: Social Indicators.......................................................................................................... 35 Annex B6:Key Economic Indicators............................................................................................ 36 Annex B7: Key Exposure Indicators ............................................................................................. 37 Annex B8: Statement o f IFC's Held and DisbursedPortfolio....................................................... 38 Annex B8: Operations Portfolio (IBRD/IDAand Grants)............................................................. 39 ALGERIA 2004-2006 CAS ProgressReport I.COUNTRYCONTEXT A. Introduction 1. After emerging from a decade o f terrorism, Algeria i s in a phase o f transition from a centrally planned economy to a market driven economy. The 2004-06 CAS laid out a strategy to assist Algeria in implementing the necessary reforms and responding to key development challenges identified as: (i) how to use the country's oil and gas reserves for the long term benefit o f the population; (ii) how to create growth and employment inthe non-oil economy and avoid the social tensions that would be caused by increased unemployment; and (iii) how to provide better public services so that all Algerians would be able to participate in and benefit from a twenty first century market economy. 2. The proposed support o f the Bank Group to Algeria for 2004-06 mirrored these challenges by aiming at: (i)supporting fiscal sustainability and hydrocarbon revenue management to build the basis for sustained growth; (ii) removing the constraints to private sector-led growth, particularly those affecting the business environment, SMEs, the financial sector, and infrastructure development; and (iii)supporting the Government's efforts to articulate and implement a strategy for better service delivery, particularly in water supply, transport, housing, environmental services, and human development to meet the critical needs o f the population. The Bank Group's support was to be guided by three principles: (i) selectivity through engagement in a limited number o f areas and a selective use o f Bank instruments; (ii) programmatic approach focused on transfer o f knowledge and capacity building; and (iii)partnerships, outreach and knowledge sharing. 3. An overarching consideration was the demand-driven nature o f the CAS. Special concern was to be given to providing policy advice, facilitating knowledge sharing, and helping Algeria reduce risks for investors and improve market perceptions. Financial support from the Bank was to be flexible and largely focused on technical assistance to help Algeria's institutions modernize, and support in risk mitigation. Considering that high oil prices and increasing hydrocarbon exports reduced Algeria's need for IBRD financing, there was only one base case scenario with Bank lendingnot expected to exceed US$lOO million a year. B.RecentPoliticalandEconomicDevelopments 4. Re-elected in April 2004 President Bouteflika started his second term pursuing the reform agenda o f his first term, continuing to move Algeria toward a market economy, open to the outside world and international trade, and relying for its development on partnership and on resources from the private sector. K e y reform programs to be pursued included: (i) reform o f the judiciary; (ii) o f the education system to align it with the needs o f the reform new market and knowledge economy; and (iii)redefining the role o f the State and modernizing the administration. After the US$7 billion 2001-04 Programme de Soutien h la Relance Economique (PSRE), growth would be spurred through the follow-up 2005-09 public expenditure program Programme Comple`mentaire de Soutien a la Croissance Economique" (PCSCE) o f U S 5 5 billion. An Association agreement with the EU was ratified in 2005. - 2 - Continuing on the steady trend o f the late 90s, the security situation has considerably improved, enticing the return o f the population to previously dangerous rural areas and encouraging business, including foreign, to invest throughout the country. But persisting problems such as high unemployment, recurrent water shortages in many cities and a severe housing crisis, could, if not addressed rapidly, still be significant factors o f social discontent. The demands o f the population remain high in terms not only o f economic growth and employment, but also o f improvement o fbasic services, equity and better governance. 5. The oil boom has continued since 2001, generating for Algeria fast increasing revenues for the budget and an unprecedented accumulation o f net foreign assets. Following the 1999-2002 period o f solid growth, GDP grew by 6.9 percent in2003 and by 5.2 percent in 2004, led not only by the hydrocarbons sector' but also other sectors such construction, telecommunications and other services (see Annex 1,Economic performance and outlook). The oil windfall has turned Algeria into a net creditor to the rest o f the world. Gross external reserves climbed to an estimated US$43.1 billion (more than 2 years o f import cover) by the end o f December 2004. Accelerated repayments brought total debt down to an estimated $21.0 billion by December 2004 (with an external debt-to-GDP ratio o f 26 percent). The overall fiscal balance shows a solid fiscal performance (surplus o f 7.4 percent o f GDP) in 2004, but the underlying primary non-hydrocarbon deficit i s high(rising to 27 percent o fnon hydrocarbonGDP in2004). Starting from a high27.3 percent level in2001, unemployment i s reported to have come down to 17.7 percent in 2004. The youth unemployment rate remains persistently high. The most recent poverty estimates indicate that the poverty rate has declined from 14.1percent in 1995 to 12.1 percent in2000. 6. The economic outlook for 2005 and 2006 is quite favorable on most fronts, with GDP growth projected at 4.8 percent and 4.9 percent respectively. A key driver to growth will continue to be the hydrocarbon sector. On the demand side, public consumption will be sustained by job creation programs funded by the PCSCE and private consumption will remain solid. Inflation i s projected to remain in the range o f 3.5 to 4.0 percent. The fiscal accounts project a surplus, increasing slightly from 2004, as oil prices are expected to remain high.Despite highimport demand, export growth is projected to be strong, leading to likely record current account surplus and external reserve positions, and an accelerated repayment o f external debt. 11.PROGRESSINIMPLEMENTATION OFTHE CAS 7. Implementation of the CAS and more broadly, o f reforms, has to a large extent been determined by political and economic developments during the 2003-04 period, as detailed in Annex 2. Progress varied from one sector to another, with significant results in telecommunications and energy, but fewer developments in areas such as privatization of public enterprises and limited progress in the financial sector. Some reforms had already started prior to 2004, and after a period o f slowdown around the 2004 elections, the pace o f change resumed. The impact o f Bank Group operations has been mixed, significant in some sectors and limited in others. The growing oil windfall, larger than anticipated at the time the CAS was prepared, has significantly reduced the need for external financing. The two new Bank lending operations envisaged for FY05*, were dropped. Some o f the proposed analytical work and advisory services were also cancelled or put on hold - but other, albeit 'The Algerian crude oil export unit value increased, from US29.0 in 2003 to US$32.8/bl in 2004 (compared to budgetary assumption of $19); and overall hydrocarbon exports rose by 32% in US$terms. The Solid WasteMunicipal Waste Management Project and the ICT Development Support Project. - 5 - limited, analytical work was carried out and complementary technical assistance was provided. Still, Bank support to reforms through the twelve ongoing projects has generally been timely, often with significant impact and in some sectors like telecommunications, essential. IFC`s activities have been growing, particularly in SME support and more broadly, inaddressing constraints toprivate sector development. 8. Interms o f strengtheningfiscal sustainability, hydrocarbon revenue management and Government effectiveness, Bank assistance has been more limited than anticipated and with less direct impact than inthe two other pillars o f the CAS. Most o f the newly proposed Bank activities were not carried out. Beside some policy dialogue, Bank support has been concentrating on capacity building in the Ministry of Finance (MoF), through: (i) the ongoing Budget Systems Modernization Project; and (ii) a new IDF grant to strengthen the DGRFE, the Bank's main counterpart in MoF, in the areas o f coordination, assessment, monitoring and evaluation o f externally funded projects. The public expenditure review (PER) proposed for 2004, was at the request o f Government delayedto 2005. Onthe macro- economic front, the Bank completed in 2004 an in-depth assessment o f the PSRE. Bank support on poverty assessment, covering several institutions, resumed in2004 with technical advice for the Poverty DiagnosticsReport and capacity buildingon Poverty Analysis. 9. Bank Group activities have been more significant inthe second CAS pillar, removing the constraints to private sector-led growth, improving business environment, and infrastructure development, and contributed to a number o f achievements. With the assistance o f the Bank-financed Telecommunications and Postal Sector Reform Project, Algeria i s carrying out a comprehensive sector reform inthe telecommunications and postal sector. Results have far exceeded expectations, including in terms o f liberalization, private sector investments and development o f services3. Similarly, in the crucial hydrocarbon sector, another major development has been the adoption o f the hydrocarbon law which will change the structure o f the sector, opening up significantly the oil and gas upstream sector4. The Bank financed Energy and MiningTechnical Assistance project has been instrumental in supporting reforms not only in hydrocarbons, but also in the electrical power sector and in mining'. The project played a significant role inthe design and now, the implementationof these reforms, particularly inthe creation o fregulatory agencies. Inthe transport sector, the Bank i s assisting the Ministry o f Transport in elaborating a comprehensive roadmap for reforms throughout the sector and the Bank financed Transport Technical Assistance Project i s supporting the phased implementation o f those reforms. IFC is proposing advisory services for Private Public Partnerships (PPPs) for ports and airports. 10. Algeria's financial sector was shaken by the failure in M a y 2003 o f the largest private Bank, Khalifa Bank, followed within two years by the liquidation o f two more private Algeria's telecommunicationsmarket has become the most liberalized market in the MENA region; the growing competitionhas ledto significant investment(with recordDFI outside oil & gas) and growth of overallconnectivity. It will allow foreign companies to operate - independentlyof the state owned SONATRACH - with rights to the hydrocarbonthey produceand to pay taxes directly to the state. It clarifies the role of the state as the policy maker and regulator, with the creation of the new regulatory agency, ALNAFT. It will enhance transparencyin the sector, particularly with respect to operations and revenues, consistent with the recommendations of the Management Responseto the ExtractiveIndustriesReview. Inthe powersector, reforms are underwayintroducedby the 2002electricity law allowing privatesector investment - and competition, unbundling of the national utility, creation of a separate company for system operations and subsidiaries for generation, transmission, and gas and electricity distribution, and creation of a regulatoryagency for electricity and gas. In the mining sector, independent regulatory agencies are being set up (National agency for mining patrimony, National geological agency, and Mining control agency). Hundreds of small or medium scale operationsare beingreactivated, and anumber of existingminingand quarryingoperationshavebeenprivatized. - 4 - domestic banks6. These events set back public confidence and support for the privatization of public banks. The 2004 FSAP, with a solid assessment o f financial sector vulnerabilities and development challenges, should have been a strong basis for policy dialogue, but did not lead to new specific follow-up Bank activities. Direct Bank assistance in the financial sector has continued with two ongoing lending operations: (i) the Financial System Infrastructure Modernizationproject is puttinginplace a more efficient enabling infkastructure for basic financial services, including a modem interbank payment systems; and (ii) the Mortgage FinanceTA projectaddressesthe most important constraints affecting the mortgage finance market in the banking system itself as well as in the legal and administrative environment o f secured lending. TA i s also provided by the Bank for the establishment and operation o f payment systems. Finally, inclose cooperation with France, the Bank launched inlate 2004 a technical assistance program to support Algeria's efforts to implement its new anti-money launderingand counter-terrorismfinancinglegal framework. 11. In the area of privatization and private sector development, the privatization program made little progress until late 2004. The unsatisfactory Bank TA for Privatization LIL was closed in December 2003, but as the privatization process resumed Algeria is benefiting from comprehensive EU support (3 8 million Privatization and Industrial Restructuring Program). Bank activities after the completion o f the Investment Climate Assessment (ICA) report in 2003 focused on its dissemination and advocacy to improve the business environment. The I C A recommendations were widely used by business associations and the civil society at large in their dialogue with the Government, and a number o f related positive steps were taken by the authorities'. A follow-up joint review o f the legal and judicial environment for private sector development, completed by the Government and Bank, was very well received and widely disseminated, including through a high level national seminar. 12. IFC activities have focused on addressing the constraints to private sector development - public sector control o f economic and financial activities; difficult access to finance, inadequate infrastructure; and administrative barriers and access to information - through: (i) with its NorthAfrica EnterpriseDevelopment(NAED) program, and since TA September 2004 the Private Enterprise Partnership Middle East North Africa (PEP MENA) regional program; (ii) privatization support; and (iii) prioritized direct investments, The NAED facility developed a substantial program of TA and advisory services for SME support, based on three pillars: access to finance, business enabling environment and business development services. With its wider scope, PEP-MENA also includes financial sector development, business enabling environment, privatization, and public-private partnerships, especially for infrastructure. PEP-MENAi s now well established and recognized as a leading program in SME and overall private sector development in Algeria and as a catalyst to improve the enabling environment. Regarding privatization, proposals for a global advisory agreement as well as specific proposals for the water sector were not put in place. In FY03 IFC contributed through a US$25 million loan to Ispat Annaba to the successful majority privatization o f SIDER, the state owned steel company. IFC also assessedthe housing finance market, explored the microfinance market, reviewed the framework for non Bank financial instruments and i s currently providing TA to the first private leasing company. Other A number of correctivemeasures were subsequentlytaken by the authorities (stricter ratios and capitalrequirements, 'Reduction deposit guarantee premiums, strengtheningthe performance contracts for public banks). of administrativebarriersto investment, easing business creation procedures, improving the management of industrial zones, and measures of compliance with WTO. The 2005 Loi des Finances (Budget Law) provides for the re-possessionby the State of unused land under the control of public enterprises, for subsequent allocation to privateenterprises. - 5 - activities in the financial sector include advisory work to Credit Populaire d'Algerie (CPA), the first state-owned Bank slated for privatization, and best practices conferences in SME Banking and Debt Recovery. Concerningprioritized investments, financing to the first private cement company reached US$45 million. In response to improved prospects and reforms, IFC now is stepping up its business development efforts to explore opportunities with foreign and local private sponsors invarious sectors. 13. Progress in implementation o f the third pillar o f the CAS, improvingpublic services, has been mixed, with the actual level o f Bank group activities differing much from one sector to another. Inthe water sector, the Water Resources Management report completed by the Bank fleshed out a detailed reform strategy. A new water code was adopted in 2005. The authorities accelerated completion o f urgent investments and launched alternatives schemes for water production (desalination plants under BOT). They have also initiated an ambitious program to bring private international operators to manage water distribution in the largest cities and havejust requested Bank assistance to that effect. By contrast, since the closure o f the L o w Income Housing Project, the Bank has not played any significant role in reforms o f the housing sector'. Following the May 2003 earthquake, the second Bank emergency project (Urban Natural Hazard Reduction Project) addressed issues o fhousing reconstruction, with limited actions in land markets and urban planning. It also introduced a new focus on preventionof natural disasters. implementation - primarily inpost-obligatory education - through seminars and a study on the 14. In the education sector, Bank support was delivered in priority areas of reform costs associated with the planned reorganization o f post-obligatory education, plus dissemination o f the results o f recent Bank research on developments in secondary education throughout the world and their relevance to the Algerian reform. The only activities undertaken in the health sector and on social protection since the 2002 PER for Social Sectors has been analytical work initiated in 2005 on the pharmaceutical reimbursement mechanisms o f the social security system. This work as well as the upcoming PER, covering among others sectors the education and health sectors, i s expected to lead to a renewed Bank involvement inhealth, probably through policy dialogue and TA. 15. Starting from the National Plan for Agricultural and Rural Development (PNDAR), the Government has developed a new vision for agricultural and rural development embedded in the 2004 Sustainable Rural Development Strategy. The two Bank financed Rural Employment projects contributed to several components o f the PNDAR, particularly in terms o f capacity building, decentralized participatory management and planning. They also support a number o f priorities o f the Government strategy for natural resource management being implemented through the National Action Plan for Environment and Sustainable Development adopted in 2002. The Industrial Pollution Control Project's technical assistance component has had a significant impact in terms o f dialogue, work on regulatory and institutional aspects, and capacity buildingin the Ministry o f Environment. A first cost-benefit analysis of environmental degradation in Algeria was carried through the METAP (Mediterranean Environment Technical Assistance Program). The Operational Strategy for Municipal Waste was completed with the assistance o f the Bank in 2003, but the planned follow-up Municipal Waste Management project was dropped, due mainly to the work with Algeria (founding member o f the Bank's Global Gas FlaringReduction- GGFR - availability o f grant financing from other donors. The Bank has also started ground breakmg - The Govemment has launched a programof constructionof a million new dwellings, in largepart with public funds under the supply-drivenapproachtraditionally usedinAlgeria. - 6 - Public-Private Partnership) through the Ministry o f Energy and Mines and SONATRACH on gas flaring reduction. 16. The IBRD Portfolio has decreased from 13 projects (with net commitments o f US$698.8 million) at the end o f FY02 to 9 projects (with net commitments o f US$348.3 million) as of July 7, 2005. The disbursement ratio between FYOO to FY04 averaged only 11 percent, and dropped to 8.9 percent for FY05, well below the Bank's average o f 17.6 percent. Slow implementation continued to affect most projects, partly because o f insufficient capacity and lack o f familiarity with Bank procurement procedures. Portfolio quality improved in FY02 and FY03 but deteriorated in FY04. Following Country Portfolio Performance Reviews in 2003 and 2004, steps were taken to improving quality at entry and portfolio performance, particularly project-specific seminars to disseminate best practices on procurement and financial management. Procurement and financial management activities have been mostly decentralized at the Bank's Algiers office. The liaison office, opened inJanuary 2002 and co-located with IFC's PEP-MENA,has been upgraded into a full country office with the effectiveness o f the Establishment Agreement in August 2004. It has significantly contributed to improving relations with the Government and moving the policy dialogue forward. IFC's Algeria portfolio i s now its fourth largest inthe MENA region, with a total committed portfolio o fUS$74 million at the end o f FY04. IFC's portfolio performance has been excellent with all projects doing well, except for a small investment in Algiers Investment Partnership. MIGA has no outstanding exposure in Algeria but is currently underwriting an infrastructureproject. 17. Overall, Bank activities have been very selective, consolidating partnerships (including with bilateral and UN Agencies) and specializing in areas where the Bank has a comparative advantage. Bank-Fund collaboration had particularly focused on the FSAP and will now be particularly relevant in the upcoming PER. The Bank-EU partnershp has essentially been concentrated on telecommunications and postal sector and water resources. Outreach and knowledge sharing by the Bank has expanded significantly since the opening o f the office in Algiers, including through the establishment o f a Public Information Center, A direct outcome has been a better understanding o f the Banks' role and a more positive Bank image throughout Algeria, as illustrated by more objective and balanced reports on the Bank's work inthe media. 18. Considering the Algerian environment and the status of the Bank dialogue with the Algerian authorities in 2002, the key challenges, objectives and Bank Group strategy elaborated in the CAS remain valid. Implementation o f economic reforms during 2003-04 has, however, been slower than expected, the demand for Bank group services has been correspondingly reduced and hence the volume and scope o f Bank Group activities have been smaller than anticipated. The actual extent and specific effects o f the Bank support varied much from one sector to the other, and from one topic to the other -reflecting the importance o f selectivity and the crucial need o f a strong "client pull". As reflected by the variation of outcomes by sectors, strong interest o f the key sector counterparts in working with the Bank Group and their commitment to fast achievement o f results, are essential prerequisites. In a highnumber o f cases, activities agreed upon earlier with the authorities, as well as activities proposed later, were eventually not carried out; diagnosis and recommendations o f the Bank derived from ESW or ongoing projects, were at first endorsed by the client, but no follow-up involving the Bank group further was agreed upon, for various reasons, including particularly: (i)a lack o f consensus among the various stakeholders affected by reforms or other actions; (ii)problems o f implementation capacity o f the Algerian administration; or (iii) - 7 - in a growing number of instances, strong prospects of support with large grants from other partners '. 111. CONTINUING CHALLENGES AND BANK GROUP ASSISTANCE STRATEGY FORALGERIA A. Development Challengesand Government Program 19. While Algeria has made progress during the last few years towards a market-based economy, much remains to be done in terms o f sustainable accelerated growth, and rapid implementation o f the necessary reforms. As the program presentedby the Government after the 2004 elections and its successive annual programs recognize, many obstacles remain on the path o f sustained and equitable growth. Key challenges identified in the CAS and the corresponding objectives and strategy o f the Bank Group remain valid. Some other challenges which were less visible in2003 deserve additional attention. 20. Algeria's growth continues to be very much dependent on hydrocarbon exports and the country remains vulnerable to oil price shocks." As stressed inthe CAS, the country still needs to consolidate and ,strengthen macroeconomic stability, diversify the economy and increase productivity. The resumption o f growth inthe non-hydrocarbon sector i s still largely fuelled by public investment. Private investment i s on the rise, but the business environment is still problematic and FDI remains below expectations. Access to basic services (transportation, housing, water, information and telecommunication) still fall short o f the growing demand. The quality o f education and o f health services, which had much deteriorated during the 90s, has not seen significant improvement since 2000. The incomplete reforms and limited private sector supply response have not led to GDP growth rates averaging more than 6 percent a year, the growth required to reduce unemployment significantly. 21. With substantially increased oil revenues, Algeria is now embarking on a massive public investment program, starting for the period 2005-09 with the US$55 billion PCSCE public expenditure program. This program should address the most pressing needs interms o f improvement o f the provision o f public services, and deal with a backlog o f infrastructure rehabilitation dating from the period o f terrorism, plus major modernization and expansion needs. While such a level o f public investment can be accommodated in the Government's commitment to move to a sustainable budgetary position, it raises serious issues concerning the quality o f expenditures. A program o f such magnitude raises even more challenges than before in terms o f sectoral strateges, expenditure programming, program execution and management, monitoring and evaluation, to ensure that investments will support faster growth and development, instead o f greater opportunities for waste and corruption. Besides problems o f adequate procedures and their enforcement, issues include ambiguity o f responsibilities between different levels o f Government and a need for better coordination within the administration, management control and overall capacity o f the civil service. Such as the EUwith a 2001-04 MEDAprogram of 336 million and a 2005-07 National Indicative Program of 106 million. lo The hydrocarbons directly contributes to around 30 percent o f Algeria's GDP, provides between 65-70 percent of total fiscal revenues, and generates around 97 percent of total export revenues. Algerian exports are among the least diversified in middle-income countries. Non-oil exports account for around 3 percent of total exports. Many enterprises producing exportable goods are still State-owned, enjoying considerable protection. - 8 - Improving governance will be essential for this public expenditure program, as much as it i s a key challenge in the broad development agenda, as underscored by President Bouteflika" himself. Inthat vein, the Government i s preparing an Anti-corruption Law for 2005 and has embarked on a comprehensive program to modernize thejudiciary. 22. Other challenges, not highlighted in the CAS, come out more clearly as reforms are pursued and investments and economic activities pick up throughout the country. Environmental issues need to addressed, not only in industry and the energy sector, but also in other areas such as waste water and solid waste management, where urgent remedial measures are particularly needed. As the population and economic activities are highly concentrated in a narrow stretch o f land along the coast, environmental degradation i s pervasive inmajor parts o f the coastline and the authorities are planning an integrated coastal zone management program to correct existing damages and prevent future degradation. Fast growing urban concentration in the Algiers area i s causing increasing problems o f pollution, land management and traffic congestion with related health hazards. A coherent program of land use planning needs to be articulated and implemented rapidly as proposed by the Ministry of Environment. In addition, the Algerian economy is permanently threatened by endemic natural hazards - floods and earthquakes and the focus on prevention o f such disasters needs to be reinforced in the investment and administrative reform programs. Effective decentralization (to the regions and municipalities) i s another critical aspect of the pervasive challenge o f modernization o f the administration. Rapid implementation o f the Government's ICT development strategy (including all aspects o f universal service, e- government, etc.) i s essential to improve competitiveness and governance. Finally, while liberalization i s progressing with creation o f new regulatory agencies in many sectors, capacity building and development o f experience o f those agencies will be paramount to bring about the full benefit o f reforms. The Government i s now fklly aware o f those additional challenges and i s discussing actively with Algeria's partners how to best address them.. 23. The recent oil boom has now turned Algeria into a net creditor to the rest o f the world and the Government i s pursuinga strong policy to reduce rapidly the country's external debt, including through prepayments. The Government recently announced its decision not to rely in the near future on foreign financing, except for grants or loans on highly concessional terms (readily available fkom partners like the EU and Gulf institutions and countries) and with demonstrated added value o f having an external partner involved. One consequence o f this decision would be that the benefit o fhaving direct access to expertise such as the Bank's because o f its role in financing complex projects or programs may be lost unless new instruments like Reimbursable Technical Assistance (RTA) are rapidly put inplace. B. Bank Group Support to Algeriafor 2005-06 24. The Bank Group support program for the remaining years o f this CAS would differ fkom what had been originally proposed primarily with respect to IBRD lending, a new drive for Reimbursable Technical Assistance ,a focus on a number o f additional challenges'* listed above and an expanded role for IFC. With the recent Government decision to curtail external '' Inthe keynote message of a recent speech, he stressed how the inefficiencies o f administration and financial sector, tax evasion, fraud or corruption, were hampering Algeria's development, and strongly called for an acceleration and deepening o f reforms. l2 Primarily environmental issues and endemic natural hazards, ICT development and capacity building o f the regulatory agencies. - 9 - borrowing, IBRD lending for new projects has become very unlikely, at least in the near future. Through the implementation o f the existing Bank-financed projects, the Bank will still have significant opportunities to support ongoing reforms and maintain an active dialogue with the authorities on additional paths for reforms. But when most o f the ongoing projects will be closed13,the Bank's impact through its project portfolio would be very muchreduced. Bank support to Algeria would rely essentially on new instruments such as RTA, in addition to ESW and regular TA, and outreach activities (as detailed inAnnex 4 and Table 2). 25. As agreed with the Government, the development o fRTAwill be essentialto provide in specific areas Bank expertise of a certain scale, above the limited amounts that can be delivered through regular ESW and TA under the Bank's operating budget. RTA would be particularly suited to support complex investment programs inthe infrastructure sectors under the ambitious PCSCE, by providing the assistance needed to bring institutional capacity and implementation arrangements up to the requirement^'^ o f the tasks. The Government has already requested such RTA for the water sector, and another request i s possible in the ICT field, as a follow up when the ongoing Telecommunications and Postal Sector ReformProject closes. Potential areas for other RTA or new regular TA activities include the transport sector, environment, education and health sector, social protection, trade, the judiciary and ICA follow-up, and poverty analysis. A key Bank activity in 2005-06 will be the PER, to which the Government i s attaching special importance given the magnitude o f the PCSCE investment program and the concurrent risk o f waste inpublic spending. The PER, together with ongoing ESW in pharmaceuticals and secondary education, may pave the way for additional TA inthe health and education sectors. 26. The Bank will continue for the medium term to explore if: (i) the cost o f Bank loans for investment projects in specific areas could be reducedto more attractive levels for Algeria by blending IBRD financing with new initiatives, for example under the Carbon Finance Mechanism; and (ii)guarantees could be proposed in support to PPP schemes in infrastructure. Outreach activities and knowledge sharing will be expanded, including with the assistance o f the joint WEWMNA Marseille knowledge hub, and focused particularly on themes common to the MNA region. Given the importance o f the Association Agreement o f Algeria with the European Union and growing EU assistance to Algeria, the Bank will also reinforce its partnership with the EU. 27. IFC's strategy for 2005-2006 will continue to focus on: (i) supporting improvements in the investment climate; (ii) assisting in the privatization process; (iii)developing the financial sector; (iv) encouraging private participation in infrastructure; (v) helping strengthen the local private sector; and (vi) helping attract foreign investment and expertise. IFC i s planning to upgrade its presence in the country and increase its .activities in both investments and technical assistance. With the new PEP-MENA pillars in addition to Financial Sector Development, Business Enabling Environment, and SME Development, IFC will explore efficient ways to provide advisory services and TA on a wider PSD agenda. On the investment side, Algeria has the potential for a sizeable program in the medium-term - with a clear role for IFC, especially in providing comfort for international investors and helping upgrade local private enterprises through investments and capacity building. l3 Bymid2006, five out ofnineloans are expectedto close. l4 A new examplewould be the 1200 kmlong strategic East West Motonvay to be completedby 2009, with more than US$5 billion financing from the State budget. - 10- C. Risks 28. The main risk set out in the CAS, o f weak commitment o f the country to fast implementation o f structural reforms due to complacency arising from high oil revenues, remains valid. In addition, the related risk o f waste in the implementation o f new ambitious investment programs has become significant, if institutional capacity and implementation arrangements are not upgraded accordingly and governance issues are not dealt with forcefully. Keeping-in close coordination with other partners-a dialogue with the authorities on mitigating such risks will be paramount for the Bank Group during 2005-06. Another additional risk pertains to the actual volume and content o f Bank support to Algeria. With very much reducedlending, the Bank's role could rapidly be curtailedto providing TA in limited areas. As ongoing projects continue to close, Bank involvement could decrease sharply if RTA activities do not develop. It will be essential for the Bank Group to identify further niches where the country's needs are acute, commitment o f key counterparts i s strong, and the Bank Group's comparative advantage is decisive; and provide timely expertise. - 11- ANNEX I:RecentEconomicDevelopmentsandCurrentOutlook 1. The oil boom for Algeria has continued unabated since 1999, generating an unprecedented accumulation o f net foreign assets, together with strong liquidity in the (public) banking system. Following the 1999-2003 period o f solid growth, when GDP grew by 3.8 percent a year on average, Algeria experienced another good year in 2004, with estimated GDP growth o f 5.2 percent. During 1999-2003, growth was led by the hydrocarbon sector but also supported by the non-hydrocarbon non-agricultural sector (with the average growth rate in the steel/mechanical/electrical sector at 7 percent, and at 5 percent for the construction/public works and private industry sectors). Similarly, in 2004 the hydrocarbon and agriculture sectors remained important contributors to growth (with 3.8 percent and 2.1 percent respectively), but, in addition, the growth in the construction and services sectors remained strong at 8 percent and 7 percent respectively. The telecommunications sector, in particular, continued to expand vigorously. The export unit value o f Algerian crude oil increased to US$38.5/bl in 2004 from US$29.0 in2003, contributing to an increase inhydrocarbon exports by 32 percent inUS$ terms. 2. Inflation rate reached 3.6 percent for 2004, a rate still somewhat high for Algeria, which averaged an inflation rate o f 2 percent during 2000-03. The Office National des Statistiques (ONS) reported a 17.7 percent unemployment rate in 2004". While high by international standards, the unemployment rate has declined sharply from its very high 27.3 percent ratein 2001 as a result o f the 2001-04 Economic Recovery Program "Programme de Soutien a la Relance Economique" (PSRE), a public investment program o f DA525 billion (US$7 billion). Many o f these new jobs have been in the agriculture sector however, a sector with low productivity and representing less than 10 percent o f GDP. A negligible number o f jobs have been created in the industrial sector. The youth unemployment rate remains persistently high, at over 45 percent, reflecting, in particular, scarce opportunities for new university graduates and first-time job seekers. 3. Pursuing on the fast 1999-2003 trends, Algeria's external position continued to improve in 2004, supported by the increase in hydrocarbon prices. Estimates show the current account surplus at 13 percent o f GDP in2004. Although imports, especially consumption and capital, rose in 2004, they were more than offset by high export receipts. Gross external reserves climbed further to an estimated US$43.1 billion (or about 2 years o f import cover) by the end o f December 2004. High reserve levels allowed for the continuation o f a new debt management policy based on debt prepayments. Hence, total debt went down from $23.4 billion end o f to 2003 to an estimated $21.O billion by December 2004, while the external debt-to-GDP ratio decreased from 34 percent in2003 to 26 percent in2004. 4. The overall fiscal balance for Algeria shows a solid fiscal performance, but the underlying primary non-hydrocarbon deficit remains high. The overall fiscal balance remained in healthy surplus for 2004, at 7.4 percent o f GDP (from 4.6 percent in 2003). As per preliminary estimates, public spending decreased, to 46 percent o f non hydrocarbon GDP (NHGDP) in 2004, as current expenditures were slightly reduced, and non-hydrocarbon tax revenues were higher than expected. The non-hydrocarbon primary deficit improved slightly in 2004 to 27 percent of NHGDP (from 30 percent in 2003). In addition, the authorities have prepared a fiscal consolidation plan in the 2005 Budget Law, which aims to bring the primary non-hydrocarbon deficit to sustainable levels and to de-link the volatility o f hydrocarbon revenues with non- hydrocarbonaccounts. l5ReflectingarevisedONS definition ofunemploymentin2004. - 12- Table 1-Algeria Key Economic and Indicators ChangesfromLast CAS - Last CAS Current CAS Current CAS Actual Forecast Actual Economy (Cr) 1996 1997 1998 2003 2004 2005 2003 2004 Real Growth rates (%) GDP 4.1 1.1 5.1 3.4 3.3 3.1 6.9 5.2 Exports FOB 19.4 -4.8 -28.8 3.5 3.4 2.1 8.6 3.4 Imports CIF -10.2 -2.8 6.5 5.7 5.2 4.6 1.6 13.3 GDPInflation 23.8 6.5 -4.2 3.5 2.5 2.5 2.3 3.6 National accounts (% GDP) Current Account Balance 2.7 7.2 -1.9 9.0 5.4 4.7 13.0 13.1 Gross Investment 24.9 24.7 26.6 29.0 25.0 26.0 30.5 32.6 Public finances (% of GDP) Fiscal balance 2.9 2.4 -3.9 -0.7 -1.3 -1.4 4.6 7.4 Foreign financing 4.1 2.3 -0.3 -1.7 -2.0 -2.3 -1.5 -1.9 International reserves (as months o f imDorts) 4.5 9.4 7.6 20.6 20.2 19.9 20.6 24 5. The economic outlook for 2005 and 2006 i s quite favorable on most fronts (table B6). Growth i s projected to taper o f f slightly to around 4.8 percent in 2005 and 4.9 percent in 2006. On the supply side, a key driver to growth will continue to be the hydrocarbon sector. On the demand side, public consumption will be sustained by job creation programs funded by the PCSCE and private consumption will remain solid. Inflation is projectedto remain inthe range o f 3.5 to 4.0 percent. The fiscal accounts project a balance in surplus, increasing slightly from 2004, as oil prices are expected to remain significantly higher than in the 2005 Budget Law price o f US$19/bl. The overall fiscal surplus masks however a growing primary non-hydrocarbon fiscal deficit, due to lower expected import taxes and non-taxes revenue. This worsening deficit i s addressed in the 2005 Budget L a w by containing the wage bill and continued active debt management, with the goal o f reaching sustainable deficit levels by 2009. Despite high import demand, export growth i s projected to be strong, leading to likely record current account surplus and external reserve positions, and an acceleratedrepayment o f external debt. 6. The recent oil boom has now turned Algeria into a net creditor to the rest o f the world. Despite these achievements, Algeria remains vulnerable to oil price shocks. The oil sector inevitably continues to affect economic developments, as it directly contributes to around 30 percent o f Algeria's GDP, provides between 65-70 percent o f total fiscal revenues, and generates around 97 percent o f total export revenues. External vulnerabilities are also considerable. Algerian exports are among the least diversified in middle-income countries. Non-oil exports - 13 - account for around 3 percent o f total exports. Many enterprises producing exportable goods are still State-owned, enjoying considerable protection. 7. Trade reforms continued to take place in 2004. WTO membership plans have been pushed to 2005 due to a few remaining bottlenecks. Reforms enacted include large reductions o f the maximum tariff rates and rationalization o f the tax and tariff structure. The Association Agreement with the European Union was ratified in April 2005 and i s expected to become effective in the third quarter o f 2005. It provides for a gradual reduction o f import duties on industrial products inAlgeria over 12years, and the resulting challenges are now well understood by many Algerian producers, private as well as public. A comprehensive EU program o f industrial upgrading o f private Algerian firms to increase their competitiveness i s also under implementation. 8. Poverty estimates usingthe most recent available 2000 householdbudget survey, indicate that the poverty rate for 2000, 12.1 percent (affecting 3.7 million people), has regressed compared to 1995, when the rate was 14.1 (4 million people). The recent reduction of poverty has been mainly due to having achieved macroeconomic stability, and having doubled public expenditure in social sectors during 1995-2000. Since 1995 there has also been low inflation and positive, albeit low, growth o f real per-capita income at around 1.5 percent on average per year, particularly in labor intensive sectors (agriculture, services and construction); the unemployment rate has been stabilized, and household real disposable income has increased by 20 percent followed by an increase in per-capita real consumption by 4.6 percent. Extreme poverty almost halved from 1.9 percent in 1988 to 1 percent in 2000, making Algeria closer to achieving one important MDG. The authorities project that by 2005 extreme poverty will be eradicated, especially due to increased labor intensive public investment through the PSRE and PCSCE. While the incidence o f poverty i s more pronounced in rural areas, poverty has become a more visibly urban phenomenon. The poverty rate inrural areas, at 14.7 percent in 2000, i s lower than the 19 percent rate in 1995, although it remains higher than 11 percent in 1988. But, affected by progressive urbanization (58 percent urbanization rate), the urban poverty rate has increased in 2000 to 10.3 percent from 9 percent in 1995 and 5 percent in 1988. - 14- ANNEX 11. ProgressofReforms and CASImpact So Far OverallAssessment of CASImplementation 1. Implementation o f the CAS and progress o f reforms at large during 2003-04 were very much determined by political, social and economic developments o f the country during that period. Some economic reforms had already been implemented or started before the 2004 presidential elections - a period o f slowdown - after which the pace o f reforms resumed, particularly in 2005. Progress has been different from one sector to another, with significant results in telecommunications and energy, but few developments in privatization o f public enterprises and limited progress inthe key financial sector. With the increased oil windfall - to an extent not anticipated at the time the CAS was prepared the country has reached a stage where - the role o f International Financial Institutions and other partners in terms o f bringing financial resources has become negligible. This was confirmed in the spring o f 2005 when the Government announced its new policy not to rely in the foreseeable future on foreign financing, except for grants or loans on highly concessional terms, with demonstrated added value o f having an external partner involved. The two new Bank lending operations envisaged for FY05 have not come to fruition: the preparation o f the Solid Waste/municipal Waste Management project was stopped while appraisal o f the second, the Information Communication Technology Development Support Project, was first delayed and i s now likely to be supported by Bank technical assistance only, instead o f an IBRDloan. 2. Some o f the analytical work and advisory services planned under the CAS were also cancelled or put on hold - but other, albeit limited, analytical work was carried out and complementary technical assistance was also provided. Ina number o f cases, the diagnosis and recommendations o f the Bank's work were endorsed by the client, but no immediate follow-up involvingthe Bank group was agreed upon, for various reasons, ranging from a lack o f consensus among the diverse stakeholders affected by follow-up reforms, to problems o f implementation capacity o f the Algerian administration, or, in a growing number o f instances, assurances or strong prospects o f robust support through large grants from other partners16. In the latter case, the contribution o f the Bank's work can still be considered as essential. At the same time, Bank support to Algeria's reformprocess through the ongoing 12 projects initiated under the previous CAS, has generally been significant and timely, often essential, and insome instances pivotal. Progress in Infrastructure Sectors and Natural Resources 3. In the energy and infrastructure sectors, the Bank`s input was channeled through a mixture o f ongoing projects, TA and analytical work. The Bank financed Energy and Mining Technical Assistance loan (EMTAL) has been the vehicle o f unique support in designing and implementing the key reforms o f the energy and mining sectors and creation o f new regulatory agencies. Reforms introducedby the 2002 electricity law which allows private sector investment and competition in the power sector, are under implementation: unbundling the national utility (SONELGAZ), creation o f a separate company for system operations and subsidiaries for generation, transmission, and gas and electricity distribution, and creation o f a commission for regulating electricity and gas distribution. The capital o f SONELGAZ subsidiaries i s open to private investment. Attempts have been made to attract private investors to a number o f Independent Power and Water Projects inpartnership with the Algerian Energy Company (owned l6Such as the EUMEDA programwith a 2001-04 programof336 million and a2005-07 National Indicative Program (PIN) of106 million - 1 5 - by the national oil company, SONATRACH and SONELGAZ), with some success in power andor water desalination ventures. Inthe mining sector, independent or autonomous regulatory agencies are being set up: the National Agency for Mining Patrimony, the National Geological Agency, and the Mining Control Agency. The EMTAL project played a significant role in the implementation o f these reforms. 4. A significant event has been the adoption inMarch 2005 o f the new hydrocarbonlaw. This law will radically change the structure of the Algerian crucial hydrocarbon sector, opening up significantly the oil ad gas upstream sector. It allows foreign companies to operate - independently of the state owned SONATRACH - with rights to the hydrocarbon they produce and to pay taxes directly to the State. In addition, SONATRACH will be required to bid for exploration rights along foreign companies. The law clarifies the role o f the state as the policy maker and regulator- with the creation o f the new regulatory agency ALNAFT,defines the competitive environment in which energy companies - including SONATRACH - will operate, and opens up both upstream and down stream activities to domestic and foreign private investment. Privatization o f SONATRACH is not foreseen inthe law. However the law exposes - within a transitory period (up to 7 years) the State-owned company to competitive pressures. The law introduces also changes regarding gas exports, which are so far effectedprimarily under long term contracts, primarily to Europe. Future benefits from the bill are seen in the potential for foreign development inthe hydrocarbon sector, and eventual expansion o f state revenues from the sector itself. 5. Reforms in the telecommunications sector have been deep and swift, supported to an important extent by the Bank through the Telecommunication and Postal Reform project. Following the 2000 Post and telecommunication law: (i) postal and telecommunication services were unbundled and transferred from the central administration to two distinct companies, operating under commercial law Algkrie Tklkcom (AT) and Algkrie Poste (AP); (ii) all market segments o f the telecommunications and postal services are being gradually liberalized; (iii) an independent regulatory body (ARPT) has been established and i s operational since M a y 2001; and (iv) the capital o f AT will be opened to private participation in2006. Reforms have not only induced a massive growth o f the telecommunication sector but also allowed the largest direct foreign investments so far in Algeria outside the hydrocarbon sector. Three G S M licenses have been awarded - including two to consortia leadby foreign investors (Orascom for US$737 million and Wataniya for US$421 million) - as well as two VSAT licenses, two GMPCS, a fixed International and Long-Distance, Local Loop license. The number o f fixed line subscribers has increased from 1,600,000 in 1999 to 3,000,000 in December 2004. The number o f mobile subscribers has reached 5,000,000 in December 2004, compared to 400,000 in December 2002 and 72,000 in 1999. Overall teledensity (fixed plus mobile lines per 100 inhabitants) has increased from 5.5 to 24 percent since June 2000. 6. The Bank financed project is now preparing the opening o f AT capital to private investors. This i s likely to be one o f most significant privatization transaction inAlgeria in 2006, with strong demonstration effects for new DFI. The project also: (i) to design a strategy strives for universal services, essential for Algeria's secondary cities and rural areas; (ii) assists the country in fleshing out a comprehensive Information and Communications Technology (ICT) development strategy; and (iii) underpins the first stages o f postal reforms. Postal sector reform i s proceeding at a slower pace compared to the Telecom sector. The Government adopted a decree in December 2004 allowing a gradual liberalization o f the sector. The main item on the agenda i s the preparation o f the universal service "cahier des charges" (rules and specifications) and the finalization o f the performance contract with Algkrie Poste by end-2005. Strategic - 16- decisions regarding development o f postal financial services remain to be formulated by end- 2005. 7. Inother infrastructure sectors reforms have been more limited and the immediateresults o f the Bank Group assistance have been less clear so far. Little happened during2003-04 in the transport sector interms o freforms. A first attempt to attract a private investor for a concession o f the Algiers international airport failed. The 2001 Transport Technical Assistance Project, remained "unsatisfactory" after a slow start, until 2005 when the Minister o f Transport agreed to restructure activities and to focus the project on the preparation and implementation o f a comprehensive transport sector reforms Roadmap with Bank assistance. 8. Inthe water sector, after the exceptional 2002-03 drought period, the authorities sought to accelerate completion o f urgent investments (Taksep dam to Algiers water transmission), launch alternatives schemes for water production (desalination plants under BOT) and improve efficiency in water allocation and distribution (including through proposals to bring private international operators in a first phase to manage water distribution in the largest cities, starting with Algiers). The new water code, stressing the need for sustainable development and use of scarce water resources, and for greater involvement o f the private sector, was adopted in June 2005. The Water Resources Management Strategy report completed in June 2003, fleshed out a detailed strategy for this sector which accounts for one o f the largest components o f Algeria's public investment program. Instead o f new technical assistance or an investment project with an IBRDloanto help carry out the strategy, the authorities haverecently requested direct TA, which i s likely to be delivered inthe form o f Reimbursable TA (RTA) over the 2006-07 period. 9. In housing, the Govemment launched a program of construction of a million new dwellings, in large part with public funds under the supply-driven traditionally used in Algeria. After the closing o f the Low-income Housing Project in June 2003, the dialogue weakened and the 2002 Housing Seminar did not lead to the expected Housing Market Strategy study proposed inthe CAS -as the Governmentcontinuedto expand the traditional Lease-Sale and SocialRental Housing Program. The satisfactory ongoing Mortgage Finance TA project addresses the most important constraints affecting the functioning o f the mortgage finance market, not only in the banlung system itself but also in the legal and administrative environment o f secured lending. Following the M a y 2003 earthquake, the second emergency project to finance recovery and natural hazards prevention in the Algiers region (Urban Natural Hazard Reduction Project) addresses issues o f housingreconstruction, but with a limited approach towards landmarkets and urban planning. It does however introduce a new focus on prevention o f natural disasters, not highlighted inCAS. 10. Challenges inthe agricultural and rural development domain are being addressed inan integrated and cross-sectoral manner through the National Plan for Agricultural and Rural Development (PNDAR) initiated in 2000. The Govemment developed a new vision for PNDAR - primarily under the Sustainable Rural Development Strategy prepared in 2004. This agricultural and rural development which has been incorporated into the gradual evolution o f the vision entails: (i) confirmation o f the reliance on private initiative, complemented by strong Govemment support; (ii) targeting the farm, the farm family and the farmer, as creator o f wealth, and focus o f public support; and (iii) a higher degree o f and more transparent participation by the target groups inthe use o fpublic resources. 11. The involvement o f the Bank has been instrumental inthe rural sector with the two Rural Employment Projects, through the Bank's experience in participatory approach in addition to project management. The two projects contribute to several components o f the PNDAR in the - 17- Eastern and Central parts o f the country. In terms of capacity building, decentralized participatory management and planning methods employed in these projects have being adopted and replicated in the PPDR program (Projets de proximitd de ddveloppement rural) under the PNADR. Significant changes also in project management methods have been introduced at the central and local levels through the improvement o f management skills for implementing agency staff. The thrust towards regional and local initiatives promoted under the projects i s providing new concepts to regional and local authorities in their reflection on decentralization and on the redefinition o f the role and responsibility o f the state and the other stakeholders. The two projects also follow a number o f priorities o f the Government strategy for natural resource management being implemented through the national environmental action plan Programme National d 'Action pour 1'Environnement et le Development Durable (PNAE-DD)adopted in2002. 12. The 2003-04 period saw some slowing down in the pace o f environment-related reforms. The Operational Strategy for Municipal Waste was completed with the assistance of the Bank in 2003, but the expected follow-up Municipal Waste Management project did not come to fi-uition. Little progress was achieved on the financial and institutional aspects upstream with the municipalities and a number of landfills built under PSRE are not operational as their mode o f operation and fundingwas not agreed upon with municipalities. Onthe legislative and regulatory front, the Ministry o f Land Use Planning and Environment had a number o f laws and regulation adopted. The comprehensive technical assistance component o f the Industrial Pollution Control Project has made a significant impact in terms of dialogue, technical capacity build-up of the Ministry of Environment, and regulatory and institutional aspects (for example concerning the management o f the Environmental and Pollution Abatement Fund). The project's physical achievements (industrial pollution abatement) in the Annaba region has also had an important demonstration effect. A variety o f TA activities are also being pursued through the METAP (Mediterranean Environment Technical Assistance Program) including a first cost-benefit analysis o f environmental degradation in Algeria, plus studies on integrated coastal zone management. The Bank has also started ground breaking work with Algeria (founding member o f the Bank's Global Gas Flaring Reduction - GGRR Public-Private Partnership) - - through the Ministry o f Energy and Mines and SONATRACH on gas flaring reduction. This GGFR work has started assisting Algeria in reducing remaining flaring o f associated gas (estimated at about 4.5 bcm per year) through: (i) an Associated Gas Utilisation Study for three SONATRACH production areas; and (ii) Clean Development Mechanism (CDM) Capacity Building. Private SectorDevelopment and Financial Sector 13. In private sector development and the financial sector a significant and steadily growing contribution o f the Bank Group i s being delivered by IFC as detailed in Annex 3. Regarding private sector development the 2002 country-wide investment climate survey of 570 firms, the Foreign Investment Advisory Services (FIAS) Report, the 2003 Investment Climate Assessment (ICA) and successive reports by a number o f Algeria business associations, have pointed at the persisting barriers and spelled out a number o f recommendations. The I C A recommendations were widely usedby business associations and the civil society at large intheir dialogue with the Government. A number o f positive steps were accordingly taken by the authorities, regarding administrative barriers to investment, easing business creation procedures, budgetizing subsidies to Public Enterprises, improving the management o f industrial zones, and compliance with the WTO. The 2005 Loi des Finances (Budget Law) provides for the re- possession by the State o f unused land under the control o f Public Enterprises (PES) for subsequent allocation to private enterprises. A multifaceted plan to support creation and development o f SMEs i s under execution with IFC, EU and bilateral assistance. As a follow-up - 1 8 - to the ICA also, a joint review" o f the legal and judicial environment for private sector development has been completed by the Govemment and the Bank and widely disseminated. On a parallel front, the Government has embarked on a program to modernize the judiciary: an overhaul o f laws (Civil code, codes o f Procedures, Commerce code) i s under way together with the reorganization and expansion o f the courts system and a comprehensive program o f training o fjudges and other court staff. The Government i s also preparing an Anti-corruption Law with the view to adopt it in2005. 14. After the assets o f the public sector steel complex SIDER were sold to an International steel making group in 2001-2002, little happened regarding privatization o f PEs untilmid-2004. The unsatisfactory Bank TA for Privatization LIL was closed in December 2003. Since the last quarter o f 2004, the Government has given a new impetus to enterprise privatization, stirring much less opposition from the unions than in the past. The process o f privatization o f about a hundred enterprises i s now essentially completed or well under way. As the privatization process i s now resuming, Algeria i s benefiting from comprehensive EU support through a 38 million Privatization and Industrial Restructuringprogram under MEDA. With the 2005 budget law, the Govemment decided that subsidies to loss-making PES(about !h percent o f GDP) would from now on be channeled directly through the budget rather than through the public sector banks. 15. Algeria's financial sector has been shaken by the failure in M a y 2003 o f Kalifa Bank, the largest private Algerian Bank18, followed within two years by the liquidation o f two more private domestic banks. These events indicated that while the regulatory framework was relatively sound, enforcement was weak. They seriously set back public confidence in the domestic banking system and support for the privatization o f public banks. A number o f corrective measures were subsequently taken by the Algerian Central Bank (stricter ratios and capital requirements, deposit guarantee premiums). An attempt to open-up the capital o f one large public bank, the CPA, and attract a first rate strategic investor, was launched with the active support o f IFC, but did not come to a conclusion as the process stalled. The authorities have strengthened the performance contracts for public banks, which are pursuing internal efforts to improve their efficiency and testing twinning arrangement with foreign banks with EUassistance. Yet, the financial sector largely dominated by the State (with the 6 public banks holding 90% o f banking sector assets and more than 80% o f total financial system assets), needs to go further and faster on the path o f reforms recommended in the World Bank-IMF FSAP completed in July 2004. The FSAP provides a solid knowledge base o f the financial sector vulnerabilities and development challenges, and should therefore have served as a strong basis for policy dialogue. Ithas not lead so far to new Bank group activities inthe financial sector. 16. Bank assistance in the financial sector include two ongoing lending operations (Mortgage Finance Technical Assistance Project and Financial System Infrastructure Modernization Project) as well as ESW and TA. After a difficult start, the restructured Financial System InfrastructureModemization project i s now expected to meet its objectives o f putting in place a more efficient enabling infrastructure for basic financial services, with the support o f the Central Bank. Regarding payment systems, the Financial System Infrastructure Modemization Project i s accompanied by Bank assistance and advisory services requested by the authorities on issues related to the establishment and operation o f payment systems, with a particular emphasis Recommendations o f the study include establishing a business law development group to help address in a strategic '*mannera the challenge o fbusiness law development and developing a long-term vision for training activities. With cost for the Government estimated to exceed US$ 1billion, mainly to cover losses o f public agencies on their deposits in the failed banks. The Khalifa bank failure was part o f the demise o f the whole Khalifa group, including its airline, the largest private one in Algeria; the bankruptcy o f this airline also stalled the process o f liberalization in domestic air transport. - 19- on systems for small payments. On the front o f Anti-money laundering the Bank in close cooperation with France has launched in 2005 a technical assistance program" to support Algeria's efforts to implement its new anti-money laundering and counter-terrorism financing legal framework. Human Development 17. In the education sector, the Govemment is introducing measures to revitalize and restructure the system o f education that include: (i) reorganizing obligatory education to five years o f primary and four years o f middle school; (ii) introducing three academic fields in post- obligatory education (general and technical education; technical education; and vocational education); and (iii)reinforcing the scientific instruction at the university level. Significant progress has been made in the initial phases o f the reform program. The authorities have been interested in specific technical support from the Bank in priority and urgent areas o f reform implementation, primarily the reform o f post-obligatory education. A study analyzing the costs associated with the planned reorganization o f post-obligatory education, presented various scenarios to achieve intended objectives and compared their costs and potential effectiveness - with informed options adopted for the relative development o f professionalvs. academic streams within post-obligatory education. Through a series o f seminars and meetings with Government and non-governmental stakeholders, the Bank shared with the education authorities the results o f recent Bank research on developments in secondary education throughout the world and their relevance to the Algerian reform. Such activities have made a clear contribution to the reform process. 18. Regarding the health sector and social protection, the reform agenda and policy dialogue with the Bank have not move much since the 2002 PER for social sectors. No ESW/TA activities were undertaken, until new analytical work started in 2005 on the pharmaceutical reimbursement system o f the Social Security. This work plus the new PER (which will also review health and education) may underpin a renewed policy dialogue. No Bank work on social protection issues was undertaken since the 2002 PER at the request o f Govemment to postpone - such activities and to focus first on the advisory work on pharmaceuticals. 19. Bank support on poverty assessment, covering several institutions, resumed in 2004 with technical advice for the Poverty Diagnostics Report and capacity building on Poverty Analysis. The Bank carried out a thorough review o f the Poverty Diagnostics report produced by the authorities, based on the Household Survey results from 2000 and conducted training events for staff from the different Algerian institutions dealing with poverty issues. The approach followed has particularly developed the ownership o f the poverty assessment process by the Algerian institutions. Fiscal Sustainability and Government Effectiveness 20. Interms of strengtheningJiscal sustainability, hydrocarbon revenue management and Government effectiveness, Bank assistance has been more limited than anticipated and essentially channeled through or focused on the Ministry of Finance. The Bank completed in 2004 an in-depth assessment o f the PSRE. A new public expenditure review (PER) initially proposed for 2004, was at the request of Government delayed to 2005. This new PER will l9The funding is providedby Franceand the Bankhas playedakey role indesigningthe assistanceprogramand will keep involved inthe oversight o f its implementation.This programfocuses on the creationof aFinancialIntelligence Unit andthetrainingofbankingsector supervisorsandprivatesectorcomplianceofficers. - 20 - concentrate on four sectors: education, health, water resources and transport/public works. A ROSC (accounting and auditing) was completed in spring 2003, but the Govemment did not expressed subsequent interest in a CFAA. While a number o f new ESW activities envisaged under the CAS have so far not been carried out, the Bank produced a full range o f exhaustive sector briefs, which were shared with the different levels o f Govemment as the new Government program and the PCSCE were beingformulated. 21. Bank work with the Ministry o f Finance focuses on capacity building, with the Budget Systems Modernization Project approved 2001and a new IDF grant. The first project covers: (i) budget reform, including budget preparation (MTEF, performance budgeting, improved resource allocation), budget presentation (program budgeting, GFS nomenclatures) and a revision o f the budget execution cycle, including the expenditure circuit, the control and auditing functions, as well as govemment accounting; (ii) computerization o f the budget activities, centering on the preparation o f an IFMS; and (iii) expertise to General Tax Directorateinthe computerizationpart o f their reform. The IDF grant approved in March 2004 will strengthen the Direction gdndrale des relationsJianciBres extirieures (DGRFE), the Bank's main counterpart in MoF, in the areas o f coordination, assessment, monitoring and evaluation o f donor-funded projects. Current Status of IBRD Portfolio 22. After a series o f measures to improve performance, the Algeria portfolio quality made a major improvement inFY02 and FY03 but started deteriorating again in FY04 (table B2). From 8 percent inFY03, the number o f Projects at risk rose above 20 percent inFY04-05. Table 1: World Bank Algeria Portfolio FYO1-FYO5 FYOl FY02 FY03 FY04 FY05 Number of active Projects 10 13 13 11 9 Net Commitments (USSm) 668.1 698.8 560.8 473.9 348.3 Projects at Risk (%) 20 15 8 27 22 Commitments at Risk (%) 23.9 24.9 14.6 10.3 33.3 Disbursement Ratio (%) 9.8 18.2 11.7 11.3 8.9 Slow implementation continues to affect most projects, partly because o f insufficient capacity and lack o f familiarity with Bank procurement procedures. The average disbursement ratio was about 11percent between FYOOto FY04 and droppedto 8.9 percentbelow the Region's (11.2percent) and Bank's (17.6 percent) average. Partnerships 23. Given the limited resources and the need to enhance effectiveness o f client support, the Bank has been selective, specializing in areas where it has a comparative advantage. The Bank- Fund collaboration has particularly focused on the FSAP. UNDP has entered into partnership with the Bank andthe Government on the ICA andhas beenleadingthe monitoring o fprogress in meeting the MDGs. The Bank-EU partnership has essentially been concentrated on the water resources sector (including the organization o f a joint international seminar with the Algerian authorities on reforms and development o f the water sector inMay 2005). Partnerships were also established on budget management issues with the EU and France, and on reform issues in environment and transport with several bilateral development partners. The EU i s now the most significant partner with grant funding (442 million for 2001-07) for Algeria through MEDA,and i s thus a key factor inthe Algerian authorities' strategy vis-&vis external assistance. -21 - ANNEX I11 2004-2006 CAS IFCACTIVITIES - 1. The strategic priorities outlined by IFC in the 2004-2006 CAS were expected to address some o f the key constraints to private sector development which were identified in the various World Bank Group surveys, among others: (i) public sector control o f economic and financial activities; (ii)difficult access to finance, (iii) inadequate infrastructure, and (iv) administrative barriers and access to information. In 2003-2004, based on its comparative advantages and lessons o f experience working with private sector partners in other transitional countries, IFC devoted the bulk o f its efforts to those areas, through the use of: (i) Technical Assistance (TA) with its North Africa Enterprise Development (NAED) program, later merged into the Private Enterprise Partnership Middle East North Africa (PEP MENA) regional program; and (ii) prioritized direct investments. Privatization Support 2. Inthe area ofgeneralprivatizationprogramsupport and at the request ofthe authorities, F C presented proposals for a global advisory agreement as well as specific proposals for the water sector. These were not put in place as strategies for divestiture were not firmed up at the time. In Fiscal Year 2003, IFC contributed, through a U S 2 5 loan to Ispat Annaba to the successful majority privatization o f SIDER, the state owned steel company. The project included rehabilitation and upgrading to meet international environment standards. EncouragingPrivate Participation in Infrastructure 3. InthisIFChadinthe CAS outlinedpotentialopportunities intelecom, water, power, and transport. Intelecoms,IFC met with and sent a proposal to Algeria Telecom to collaborate on a pre-privatization through financing and advice, further followed by an IFC MENA Management visit to explore IFC's involvement inthis area. Outside telecoms, there has been little progress in terms o f privatization or private participationininfrastructure. Financial Sector Development 4. The financial sector i s a priority area for IFC's work in Algeria. During 1998-2002, IFC had already helped establish many o f the new private institutions in the financial sector (with equity investments intwo commercial banks, an investment bank, and a leasing company). One o f the main pillars o f both the NAED TA Program (2002-2004) and the PEP MENA Program (2004-2007) i s to support financial sector development. During the first part o f the CAS Implementationperiod, IFC undertook the following activities: (i) BankingSectorReform 5. In2003, in support of the Government's public banlung sector reform, IFC worked with the Ministry o f Finance to accelerate the privatization o f one state owned bank (CPA) through a proposed IFC convertible loan designed to attract a solid technical partner/strategic investor. Negotiations stalled mainly due to the issue o f transferring majority ownership from the State to a potential strategic investor and a slow decision process. IFC i s now processing an investment in a new bank. - 22 - (ii) NonBankFinancialInstruments 6. Housing Finance. In May 2003, IFC commissioned a thorough study o f the housing finance sector aiming at supporting IFC's strategy to stimulate the housing finance market. Results o f the study were distributedto concerned Ministries and followed up by a visit from IFC MENAManagement with the Ministryo fFinance to discuss various options for IFC involvement inthis sector. IFC's main objective is to establish abest practice housingfinance institutionwith international technical partners/investors and contribute to the development o f a sound housing finance framework in Algeria through provision o f TA to institutions and govemment bodies involved inthis sector. 7. MicroJinance. In 2003, IFC through NAED explored the prospects for a microfinance market in Algeria. The review included: (i) an assessment o f the existing regulatory framework (submittedto the Ministryo f Finance inDecember 2003); and (ii) assessment o f the strengths an and constraints for the development o f a microfinance market as well as demand data. In this process, IFC involved and sought feedback from stakeholders including donors, ministries, social development and employment support/creation agencies. IFC MENA Management met in June 2004 with the Ministry o f Finance to discuss potential for an IFC investment in this area along side identified technical partners as well as IFC's involvement in improving the framework to allow for the development of such activity inthe country. 8. Venture Capital, Factoring and Leasing. Inmid2004, to support the introduction o f new N o n Bank Financial Instruments in Algeria, mainly targeting increased access to finance for Small and Medium Enterprises, and upon request from both the Ministers o f Small and Medium Enterprises and the Minister Delegate for Financial Reform, IFC conducted a desk review o f the draft Factoring and venture capital laws. A memorandum o f understanding has been under negotiation with the Ministry o f finance. In Leasing, IFC, through PEP MENA, has also offered to review complementary legal texts drafted by the Ministry o f Finance and i s currently providing Technical Assistance through PEP MENA to the first private leasing company in the country to consolidate and expand its activities. 9. Bank Advisory Services in Risk Management. Through its TA program IFC conducted a brief diagnosis o f CPA's risk management processes, and made a proposal to assist the Bank in improving its practices and tools from loan origination to bad debt collection. A TA agreement between IFC and CPA to undertake this advisory work was signed on July 12, 2005. With a view to raise awareness on the importance o f improving banks risk management procedures, NAEDorganized two conferences (in2004) showcasing best practices inSME Banlung and Debt Recovery and their relevance to the Algerian banking sector. These events spurred critical debates relating to subjects such as information sharing and the need for a Central Bank financial database and credit bureaus. Supporting Private Sector Development through Prioritized Investments 10. In FY2003, following the investment in Ispat Annaba, IFC extended a US$35 million loan to Algerian Cement Company (ACC) to establish Algeria's first integrated dry process cement plant also with significantly lower environmental impact than the traditional process. In FY2004, IFC supported the subsequent expansion o f ACC with a US$10 million loan. In2004, IFC stepped up its business development efforts to explore investment opportunities with local private sponsors in various sectors including agribusiness, retail and services. Prospects include projects inbanlung, infrastructure, petrochemicals, and industry. - 23 - Supporting the SME Sector and Improving theBusiness EnablingEnvironment 11. SME Development is a joint priority of the Government and IFC. The North Africa Enterprise Development (NAED) facility, approved by the Board in May 2002, was established in Algiers in September 2002 and became operational in January 2003. Between January 2003 and September 2004, NAED developed a substantial program of TA and advisory services for SME support, based on three main pillars: Access to Finance, Business Enabling Environment and Business Development Services. In September 2004, NAED merged into the larger Private Enterprise Partnership for the Middle East and North Africa (PEP-MENA), approved by the Board o f Directors in September, 2004 and expected to provide TA to all countries inthe MENA Region. The merger increased the scope beyond its original SME focus to also include financial sector development, business enabling environment, privatization, and public-private partnerships, especially for infrastructure. REINFORCING BUSINESS INTERMEDIARIES AND SME MANAGEMENT TRAINING Snapshot of selected NAED/PEP M E N A activities Support to Business Associations NAED/PEPMENA has been working with the Club des Entrepreneurs et Industriels de la Mitidja, a 500 SME Association, to assist CEIMI to develop information, and training services to its members. PEP MENA also signed a partnershipwith CEIMI andManagementDevelopmentInternational(MDI), the first privatebusinessschool inAlgeria, to organize monthly management trainingsfor CEIMI's members. In May 2003, NAED signed a partnership with the Association Nationale des Exportateurs Algeriens (ANEXAL), a 100 non oil exporters association, to assist the Association in its national consolidationand strengthening advocacyfor the support of non oil export development. Part of the ANEXAL / IFC partnership includes assessments of the legal and institutional frameworkfor exports, assessmentofthe export chain, with recommendationsto authorities. InDecember2004, PEPMENA signedapartnershipwith Club d'Action et de Reflexion autour de 1'Entrerprise(CARE), Algeria's first think tank, to organize debates and raise awareness around major business enabling environment issues including transparency and succession of family businesses, corporate citizenship, information development, etc. In May 2005 IFC also signed a partnershipagreement with the Conseil National Consultatif, a public/private body establishedwithin the Ministry of SMEs to coordinateand represent Algerian Business Associationsand to lead Business EnablingEnvironment issues. IFC's role is to establish within CNC and build the capacity o f a project management unit in chargeof coordinatingvariousSME Donor programs including from Spain, Germanyand EuropeanUnion. Management Training and Consulting Products for SMEs Inpartnershipwith various consultingfirms and abusinessschool, NAEDiPEP MENA introducedinAlgeria (and for the first time in the Middle East and North Africa) and locally adapted SME Management training and consulting tools including the SME Toolkit, aweb andCD Rom content of management,marketing,accounting, HR, productionandother operational information and tips for SMES; and Cap sur I'International, an export coachingproduct; In addition, PEP MENA is finalizing the hostingofthe SME Toolkit on the site o fthe Ministry of SMEs, with technical support relatingto the maintenanceof the web site. 12. Portfolio Performance. IFC's total committed portfolio in Algeria stood at US$74 million at the end of FY04, compared to US$19 million at the end o f FY02 (see Annex BS). Algeria i s now the fourth largest exposure in IFC's MENA region, comprising about 7% of the total portfolio. In FY03, the Corporation committed US$60 million, and another US$10 million were committed in FY04 inthe form o f loans to the country's first private cement plant. - 24 - Competition from other InternationalFinancial Institutionsi s not as strong, although likely to rise as the European Investment Bank (EIB) and bilateral agencies step up their promotion efforts in Algeria. Portfolio performance has been excellent with all projects doing well, except for IFC's small investment in Algiers InvestmentPartnership, an investment bank that had mainly based its business model on the development o f capital markets intermediation and privatization advisory services in Algeria. As both of these activities were dependent on reforms that have not progressed much, the company did not generate enough revenues. Also, IFC exited its investment in SociCtC GCnCrale Algeria (SGA) by selling its shareholding to SGA's sponsor and main shareholder at a substantial capital gain. - 25 - ANNEX IV:BANK SUPPORT TO ALGERIA FOR 2005-2006 1. With the oil windfall, the Government recently stated its intention not to rely on foreign financing, except on specific grounds: grants or loans with concessional terms, and demonstrated added value o f having an external partneddonor involved in the project or program. The probability o f IBRD lending for new projects in the near future i s thereby considerably reduced. The proposed support program for the remaining years o f this CAS would thus differ from what had been originally proposed in the CAS, with respect to new IBRDlending (none or very little), a strong drive for Reimbursable Technical Assistance (RTA), and a focus on a number o f additional challenges other than those listed inthe CAS. Following a selective and opportunistic approach, the Bank will essentially propose RTA for activities o f a certain scale, above the limited amounts that can be delivered through regular ESW and TA under the Bank's operating budget. Invery specific niches in particular areas o f high Bank expertise, the Bank could still propose small loans for TA and capacity building programs. Through the implementation o f the ongoing Bank-financed projects, the Bank will still have significant opportunities to support reforms and maintain an active dialogue with the authorities on additional paths for reforms. When most o f the ongoing projects are closed (by mid-2006, five out o f nine loans are expected to close), the Bank's impact through its project portfolio i s likely to be very much reduced. Bank involvement in Algeria would then rely essentially on RTA and other new instruments, in addition to ESW and regular TA, and outreach work. Specific RTA, TA and ESW activities planned for 2005-06 are detailedbelow. 2. Inwater andsanitation,the Bankwill start in2005 anRTAprogramto assist Algeria in implementing the water sector reform strategy, starting with the preparation and implementation o f a comprehensive program to attract private operators to manage water distribution system in about 12 major cities. At this stage, except for desalination schemes, the Government has decided to finance investments for modernization and expansion o f water and sanitation systems with Sate funds under the PCSCE. At a later stage, the Bank could still explore if a guarantee facility to help the Government attract the private sector to help finance specific segments o f the sector, could be appropriate. 3. On the Information and Communication Technology (ICT) front, while completing the ongoing Telecommunications and Postal Sector ReformProject (inparticular with the partial privatization transaction o fAlge`rie Telecom), the Bank will respondto a new Government request for a follow-up RTA program for ICT Development Support focused on: (i) consolidating the results o f ongoing efforts to ensure long-term sustainability o f the overall telecom and postal sector reforms; (ii) advancing further policy, regulatory, and institutional reforms in the postal sector; and (iii) advancing on universal ICT access and a few flagship ICT initiatives, as the Government's ICT development strategy i s being gradually implemented. 4. In the energy and mining sect.or after the EMTAL project closes (August 2006) a continuing Bank presence will be helpful in consolidating reforms achieved under the project: particularly pursuing capacity building o f the newly created institutions (mainly further training o f staff in the electricity sector) but also assisting the authorities in better addressing the environmental issues (including quality o f motor fuels), pricing problems (with socially sensitive implicit subsidy issues), and energy efficiency. Short o f preparing a follow-up TA project, the Bank will soon propose an RTA program, with components that will be gradually implemented as the client's readiness develops. Consideringthe difficulties Algeria has encountered inattracting - 26 - private investment in the power sector, possible guarantees and/or loanszowould be worthwhile exploring, insupport to new PPP schemes. 5. In the Transport sector, under the ongoing Transport Technical Assistance (TTA) Project, the Bank i s focusing the restructured project activities on the implementation o f the far reaching Transport Reform Roadmap now under preparation with Bank assistance. Support to new PPP schemes (such as concessioning o f specific ports and contracting out the management o f Algiers airport, with IFC's assistance) may be part o f these activities. Given the importance o f the reforms contemplated under the roadmap, and potential significant EU assistance in the sector, the question o f the most appropriate Bank support (RTA or TA) will be raised when the TTA project closes in 2006. In the roads subsector,21Algeria is now set to complete-using primarily US$ 5.6 to 7 billion o f State budget-the strategic East West Motonvay (EWM), a 1200 km long corridor by 2009. The EWM will be the backbone o f the Algeria road network serving the most densely populated corridor which runs along the Mediterranean coast and includes the northem part o f high plateau, and is one o f the Government's highest priorities included inthe PCSCE investment program. Given the tremendous and multiple challenges faced by Algeria to complete the remaining 900 kmby the 2009 deadline, and its acknowledgment o f the implementing agencies' weaknesses, the challenge will be to bring the institutional capacity and implementation arrangements up to the requirements o f the task. At the request o f the Government, the Bankjust prepared a first diagnosis o f those arrangements and could prepare a comprehensive draft action plan to help the different responsible agencies meet the challenges o f completing the EWM within a tight schedule and reasonable cost, with proper consideration to environmental and social issues. In a second stage, Bank cooperation for implementation o f the action plan could be extended as RTA. 6. Inthe urbansector, through the ongoing investmentprojects, plus specific TA, the Bank can play a role in helping the Algerian administration (central as well local administration) improve natural hazard prevention, particularly with regard to alert system development and management. With the growing environmental issues, not only in the energy sector but also other areas like solid waste management, Algeria i s well placed to take advantage o f the opportunities offered by the Carbon finance mechanism (Clean Development Mechanism - CDM o f the Kyoto Protocol) and benefit from carbon credits. Capacity has already been build withinthe Ministryo f Energy and Mines and SONATRACH on the CDM, specifically related to investments in gas flaring reductions. As Algeria will set up the full required institutional framework and capacity, particularly at the level o f a DesignatedNational Authority (DNA), the Bank Group will have a unique supporting role to play in this new domain for Algeria. At the level o f the Ministry o f Land Use Planning and Environment, there i s a need for: (i)a more consistent overall approach based on and with clear reference to the 2001 National Environmental Action Plan; and (ii)a realignment o f the Ministry's intervention in the area o f solid waste management based on the 2003 Municipal Waste strategy2*. Bank support could take the form o f specific TA missions, or an RTA program. A municipal waste project associating IBRDfinancing blended with GEF and carbon financing, could also be proposed23. *O The Bank could also examine with SONELGAZ the rationale o f assisting it in the development o f its core operations and its expansion needs (for example the transmission system that will remain for the foreseeable future under State ownership). 2'The Bank has not been active inthis subsector since the Sixth Highway Project came to closure on December 31, 22 The Bank could also assist the ministry in an integrated coastal zone management project (that the ministry is considering developing in the near future) inimplementing the two actions highlighted above. 23 Focusing first on rehabilitating and strengthening management o f solid waste o f old hazardous landfills, including capturing methane. - 27 - 7. The rural sector will continue to benefit from Bank support through the implementation o f the Second Rural Employment Project (PEW). Future assistance could focus on helping Algeria: (i) in efficiently scaling-up the first Rural Employment Project (PER1) experience through this PER2 and the different other programs (such as PPDR) falling under the PNADR; and (ii)inconsolidatingthe successfulpilot work initiatedunder the PER1.This lastpoint would address the issue o f sustainability, not currently covered under the PER2 or any other Bank operation in the CAS. Another important area o f work would be assisting Algeria in implementing its ARD strategy and more specifically how to modernize the Algerian agriculture. Key topics include irrigation, rural credit, land reform and tenure, supply chain, agricultural export promotion, etc.). 8. Inthe financial sector, the Bank will pursue dialogue with the authorities onthe FSAP recommendations, mainly: (i) deepening the reforms o f the institutions involved in financial intermediation; and (ii) improving the framework in which financial institutions operate. After the two ongoing projects will have come to closure, specific Bank assistance in the sector could be delivered in the form o f TA or RTA, depending on the authorities' requests. Regarding Private Sector Development, an area in which other development partners are providing significant support (predominantly through grant financed programs) as well as IFC, the Bank's role in the near term would be essentially limited to advocacy o f the ICA recommendations and legal work: the Bank's follow-up to the richjoint review o f the legal and judicial environment for business, could include specific assistance focused on topics selected by the Algerian authorities after this review (such as a comprehensive training program o f the judiciary). 9. In the health sector, the Bank will primarily expand the dialogue first on the pharmaceuticals, where an initial review has just identified six major themes: (i) pharmaceutical pricing policy and mechanisms; (ii)reimbursement rates for pharmaceuticals; (iii)policies around generics; (iv) reimbursement mechanisms for pharmaceuticals per se; (v) prescription practices o f physicians, and (vi) pharmaceuticals inhospitals. Based on a multisectoral workshop held in June 2005 on these findings, the Bank will explore with the authorities which specific assistance could be provided by the Bank around these themes. In the education sector, since Algeria receives substantial technical and financial support from other donors (EU, Japan, France, Unesco), the Bank will focus more on the specific comparative advantage o f the Bank: post- obligatory education being the most promising area for collaboration, a program o f technical support (sector analysis, technical assistance) will be established, with a specific emphasis on how to ensure the articulation o f academic and vocational post-obligatory education. 10. On poverty, the Bank is ready to pursue its support in the areas of further and deeper training, and in the production o f deeper and complementary studies. In addition to completing the ongoing training cycles, continuing with the close collaboration mode used for the Poverty Diagnostics, the Bank would assist Algeria in engaging into deeper poverty analysis. Strengthening the domestic analytical capacity on poverty issues i s indeed a priority to better determine how increasing resources derived fiom booming oil revenues can be optimally used to fight poverty inthe immediate future and over the medium-run. 11. In the same vein, following up with the capacity building efforts underway with the Budget Systems Modernization Project, the work engaged in the second quarter o f 2005 on the PER should lead to a deeper Bank involvement in the budgetary processes, and possibly, enhanced use o f oil revenues. The Bank i s also ready to respond to a new request from the Ministry of Finance regarding the new Caisse Nationale d 'Equipement et de Diveloppement CNEDexpectedto deal primarilywith the large projects inthe public expenditure program. - 28 - Table 1.ComponentsofAnalyticalWork, Advisory Services, andLendingFY04-FY06 FY04 (actual) FY05(actual) FY06 (proposed) Economic & Social ~~ Economic & Social Economic & Social Monitoring .................................................................................................................................. Monitoring Monitonng Public Expenditure Review FSAPfollow-up activities PublicExpenditure (4 (c) Review FSAP (c) ...................................................................................................................... Poverty Assessment CFAA/ROSC(c) ............................................................................... GenderAssessment (c).................................... .. Follow-up Activities on .................................................................................. poverty and gender (c) Rural Dev. Strategy .................................................................................................................................. HDDialogue Pensions and Insurance ................................................................................................. Reform (d) Education Financing Post-obligatory Strategy Secondary education .......................... Health Sector follow-.... ESW ...... Health Sector Financing ~ ~ Strategy (d) up (to be specified) Pharmaceuticals ............................................................................................. ....................................................................................................................... ReimbursementStudy Water Resource Mgmt. ......................................... Strategy ...................................... HousingMarket Strategy (c) Environment Assessment ................................................................................................................................. .kl............................................................................................................ ................................................................................. Legal Business Environment CAS Progress Report Support to Fiscal Transport Sector To be determined Roadmap .............................................................................. Sustainability ........................................................................................................................... ...................................................................................................... Support to improve the TA for globalpayment RTAinWater Sector business climate systemsreform Support to public service RTAinICT Dev. delivery AMLKFT TA TA to be determinedin road sector andlegal business environment Solid Waste/Municipal WasteM p t (USS2.5 milo ICT Dev. Support fUSS22.5 mill) Note: In bold: new activities. I n Italics, activities listed inthe CAS that have been delayed (d) or cancelled (c). - 29 - Algeria at a glance 07/25/2005 M. East Lower- POVERTY and SOCIAL & North middle- Algeria Africa income Development diamond' 2003 Population,mid-year (millions) 31.8 306 2,408 GNI per capita (Atlas methcd, US$) 1,930 2,240 1,400 Life expectancy GNI (Atlas mefhcd, US$ billions) 61.4 685 3,372 1 Average annual growth, 1997-03 Population (%) 1.5 1 9 0.9 Labor force (%) 3.3 2 8 1.2 GNI Gross per primary Most recent estimate (latest year available, 1997-03) nroilment Poverty (% of population below nationalpovertyline) 12 I capita Urban population (% of total population) 59 58 49 I Life expectancy at birth (years) 71 69 69 Infant mortality (per 1.000 live births) 39 44 32 I Child malnutrition (% of children under5) 6 9 I Access to improvedwater source Access to an improvedwater source (% ofpopu/ation) 89 88 81 Illiteracy (% ofpopulation age 15+) 31 35 13 Gross primary enrollment (% of school-agepopulation) 108 96 112 7 Algena Male 112 100 113 Lower-middle-incomegroup ~ Female 104 92 111 KEY ECONOMIC RATIOS and LONG-TERMTRENDS 1983 1993 2002 2003 2004 1 GDP (US$ billions) 48.8 49.9 56 9 68.0 Economic ratios. 84 8 Gross domestic investmentlGDP 37.6 29.1 31 1 30.5 32 6 Exportsof goods and sewices/GDP 27.9 21.8 35 4 38.4 40 8 Trade Gross domestic savings/GDP 39.7 27.7 40 2 44.9 47 0 Gross national savingslGDP 37.6 26.5 38 7 43.5 45 7 I -I Current account balance/GDP -0.2 1.6 7 7 13.0 13 1 Domestic Interestpayments/GDP 2.6 3.4 2 1 1.6 1 5 Investment Total debtlGDP 33.5 52.6 39 8 34.3 25 7 savings Total debt sewicelexports 33.7 81.4 22 6 17.9 17 6 Present value of debtlGDP 38 4 Presentvalue of debtlexports 1057 est. Indebtedness 1983-93 1993-03 2002 2003 2004 (averageannual growth) , GDP 1 0 3 2 4.7 6 9 5.2 -Algeria GDP per capita -17 1 5 3.1 5 2 3.5 ~- Lower-middle-incomegroup Exports of goods and sewices 2 9 46 4.7 8 6 3.4 STRUCTUREof the ECONOMY 1983 1993 2002 2003 2004 (% of GDP) I Growth fixed investment and GDP (%) of Agriculture 7.7 12.1 10.0 10 5 9 8 Industry 55.8 48.6 52.7 54 8 56 6 Manufacturing 11.8 13.1 7.9 7 1 6 5 Services 36.4 39.3 37.3 34 7 33 6 Privateconsumption 44.1 54.9 44.5 40 4 38 5 ' 97 98 99 W 01 02 03 04 General governmentconsumption 16.2 17.3 15.3 14 8 14 5 Imports of goods and services 25.8 23.1 25.6 23 8 25 2 -GDFl +GDP 1983-93 1993-03 2002 2003 2004 (averageannualgrowth) Growth of exports and imports (%) I Agriculture 5.5 4 4 -1 3 197 3 1 20 - Industry 0.8 3 1 4 4 6 7 4 4 15- Manufacturing 0.1 -1 1 2 9 1 1 2 6 10 Services 1.1 3 2 5 0 4 2 6 7 5 0 Privateconsumption 0.6 1 8 3 1 3 9 5 8 5 General government consumption 0.6 2 9 3 0 2 8 4 5 Gross domesticinvestment 4.7 2 9 137 6 3 1 5 Importsof goods and sewices -7.0 1 9 178 1 6 13 3 Note 2004 data are preliminaryestimates *The diamondsshow four key indicatorsinthe country (Inbold) compared with its incomeqroup average If data are missing. the diamondwill be incomplete - 30 - Algeria PRICES and GOVERNMENT FINANCE I 1983 1993 2002 2003 2004 Domestic prices Inflation (Oh) (% change) Consumerprices 5.6 20.5 1 4 2.6 3.6 ImplicitGDP deflator 6.8 13.6 2.2 8.5 10.4 Government finance (% of GDP,includescurrent grants) Current revenue 36.2 27.5 35.3 37.0 36.2 Current budget balance 16.9 2.7 11.1 14.3 17.2 Overall surplus/deficit -14.4 -8.6 0 2 4.6 7.4 TRADE I 1983 1993 2002 2003 2004 (US$ mlons) 1 Export and import levels (US$ mill.) Total exports (fob) 12,742 10,410 18,700 24,460 32,220 30.000- Crude oil 3,309 2,001 5,056 7,720 12,560 Condensate 3,428 2,607 3,055 3,571 4878 25 000- - 1 , Manufactures 98 315 403 316 428 1 Total imports (crf) 10,395 8,608 12,007 13008 Food 2,026 2,092 2,740 2,598 Fuel and energy .. 141 145 112 Capitalgoods 3.348 1,835 4,570 4 822 97 98 99 00 01 02 03 Exportprice index (1995=100) .. 100 130 153 import price index (1995=100) 92 88 96 Exports Imports Terms of trade (1995=100) .... 109 148 160 BALANCE of PAYMENTS 1983 1993 2002 2003 2004 (US$ millions) Current account balance to GDP (X) Exportsof goods and services 13,509 11,020 20,010 26,030 34,070 120 imports of goods and services 12,543 9,600 14,490 16,240 21,810 Resourcebalance 966 1,420 5,520 9,790 12,260 Net inwme -1,224 -1,750 -2,230 -2,700 -3,600 Net currenttransfers 173 1,140 1,070 1,750 2,460 Current acwunt balance -85 810 4,360 8,840 11,120 Financing items (net) -298 -1,110 -710 -1,370 -1,870 Changesin net reserves 382 300 -3,650 -7,470 -9,250 I-5 Memo: Reservesincludinggold (US$ miilions) 2.085 1,743 23,100 32,900 43,100 Conversionrate (DEC, /oca//US$) 4.8 23.3 79.7 77.4 72.1 r EXTERNAL DEBT and RESOURCE FLOWS 1983 1993 2002 2003 2004 (US$ millions) Compositionof 2003 debt (US$mill.) Total debt outstandingand disbursed 16,370 26,267 22,876 23,386 21,800 iBRD 323 1,512 1,203 1,056 IDA 0 0 0 0 Total debt service 4,723 9,093 4,166 4,301 6,000 iBRD 46 282 304 286 IDA 0 0 0 0 Compositionof net resourceflows Officialgrants 18 93 95 71 Officialcreditors 353 0 -1,007 -955 Privatecreditors -43 -453 -38 -41 Foreign direct investment 0 0 970 620 620 Portfolioequity E: 12.695 World Bank program Commitments 0 240 119 95 0 A . IBRD E Bilateral Disbursements 65 176 70 50 39 6 . IDA D. Othermultilateral F Private -- Principalrepayments 22 170 200 202 189 C IMF . G .Shorbterm Netflows 43 6 -130 -152 -150 interestpayments 24 113 104 85 60 Nettransfers 19 -106 -233 -237 -210 DevelopmentEconomics 07/25/2005 - 31 - CAS Annex B2 - Selected Indicators* of Bank Portfolio Performance and Management As Of Date 07/05/2005 Indicator 2003 2004 2005 2006 f Portfolio Assessment Number of Projects Under Implementationa 13 11 9 9 Average Implementation Period (years) 3.2 3.7 3.8 4 Percent of Problem Projects by Number a, 7.7 27.3 22.2 22.2 Percent of Problem Projects by Amount 14.6 10.3 33.3 33.3 Percent of Projects at Risk by Number 7.7 27.3 22.2 22.2 Percent of Projects at Risk by Amount a,d 14.6 10.3 33.3 33.3 Disbursement Ratio (%) e 11.7 11.3 8.9 0.0 Portfolio Management CPPR during the year (yes/no) Yes No Yes Yes Supervision Resources (total US$) 1197 1175 1119 945 Average Supervision (US$/project) go 102 - 105 Memorandum Item Since FY 80 Last Five FYs Proj Eva1by OED by Number 56 4 Proj Eva1by OED by Amt (US$ million) 3,939.0 194.6 Yoof OED Projects Rated U or HU by Number 53.7 100.0 % of OED Projects Rated U or HU by Amt 52.8 100.0 a. As shown in the Annual Report on PortFolioPerformance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the PortFolioImprovement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginningof the year: Investment projects only. f. As of July 5, 2005 * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projectswhich exited during the fiscal year. - 32 - CAS Annex B3 IBRDllDA Program Summary Algeria - As Of Date 07/05/2005 Proposed IBRDllDA Base-Case Lending Progrh Fiscal year Proj ID StrategicRewards b lmplementationb US%(M) (H/M/L) Risks (H/M/L) None - 33 - CAS Annex B3 (IFC & MIGA) for Algeria Algeria IFC and MIGA Program,lW 2003-2006 - As of 613012005 2003 2004 2005 2006 IFC approvals (USrSm) 25.00 20.00 0 Sector (YO) Nonmetallic Mineral 100 Primary Metals 100 Total 100 100 0 0 Investment instrument(%) Loans 100 100 Equity Quasi-Equity Other Total 0 0 0 0 MIGA guarantees (USrSm) a 50.00 50.00 0 a FY05 data as of 513112005 - 34 - CAS Annex B4 Summary of Non Lending Services -Algeria - AS Of Date 07/05/2005 Completion Cost Product FY (US$OOO) Audiencea Objective Recent completions EvaluationlEcon. Recov. Program FY03 70 Govt, Bank Knowledgegeneration, Problem-solving Govt, Donor, Bank, Public Knowledgegeneration, Problem- Water Sector Note FYO3-04 175 Dissem. solving, Public Debate Govt, Bank, Public MacroeconomicStrategy FYO2-03 368 Dissem. Knowledgegeneration, Problem-solving CPAR FY03 115 Govt, Bank Problem-solving Govt, Donor, Bank, Public InvestmentClimate Assessment FY03 168 Dissem. Knowledgegeneration, Problem-solving FinancialSector TA FY03 39 Govt,Bank Knowledgegeneration, Problem-solving Housing TA FY03 46 Govt, Donor, Bank Knowledgegeneration, Problem-solving Recovery/PublicInvestment Prog.TA FY03 124 Govt,Bank Knowledgegeneration, Problem-solving EducationSector Review FY04 79 Govt, Bank Knowledgegeneration, Problem-solving Govt, Donor, Bank. Public AgridRural Dev Strategic Persp. FYO3-04 53 Dissem. Knowledgegeneration, Problem-solving Govt. Donor. Bank, Public Poverty Update FYO3-05 174 Dissem. Knowledgegeneration, Problem-solving PaymentSystems TA FYO4-05 31 Govt, Bank Knowledgegeneration, Problem-solving FSAP Follow-UpTA FY05 8 Govt, Bank Knowledgegeneration, Problem-solving Underway Legal and Business Environment FYO4-06 104 Govt, Bank Knowledgegeneration, Problem-solving Govt. Donor, Bank, Public Secondary Education FYO5-06 115 Dissem. Knowledgegeneration, Problem-solving Govt, Donor, Bank, Public Transport Sector Roadmap FYO5-06 195 Dissem. Knowledgegeneration, Problem-solving Poverty DynamicsTA FYO5-06 150 Govt, Bank Knowledgegeneration, Problem-solving East West ExpresswayTA FYO5-06 75 Govt, Bank Knowledgegeneration, Problem-solving IntegratedAss. Social InsuranceTA FYO4-06 180 Govt, Bank Knowledgegeneration, Problem-solving EnvironmentAssessment TA FYO5-06 90 Govt, Donor, Bank Knowledgegeneration, Problem-solving Govt, Donor, Bank, Public Public ExpenditureReview FYO3-06 395 Dissem. Knowledgegeneration, Problem-solving InvestmentClimate Follow-upTA FYO4-06 85 Govt, Bank Knowledgegeneration, Problem-solving Govt, Donor, Bank, Public Knowledgegeneration, Problem- CAS ProgressReport FY05 50 Dissem solving, Public Debate a. Government,donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving Prepared by: Kathleen STF (X32828) on July 5, 2005 - 35 - CAS Annex B5 - Algeria Social Indicators Latest single year Same regionlincome group M. East Lower- i%North middle- 1970-75 I980-85 1997-03 Africa income POPULATION Total population,mid-yeafmillions) 16.0 21.9 31.a 311.6 2,655.2 Growth rate(% annual average for period) 3.1 3.2 1.5 1.9 0.9 Urban populatioM% ofpopulation) 40.3 48.0 58.8 58.0 49.7 Total fertility rate(births per woman) 7.3 5.7 2.8 3.1 2.1 POVERTY (% ofpopulation) National headcount index 12.2 Urban headcount index 7.3 Rural headcount index 16.6 INCOME GNI per capita(US$) 950 2,470 1,930 2,210 1,480 Consumer price inde$7995=100) 7 18 147 Food price indeg7995=100) 17 136 INCOME/CONSUMPTIONDISTRIBUTION Gini index Lowest quintile(% of income or consumption) Highestquintile(% of income or consumption) SOCIAL INDICATORS Public expenditure Health(% of GDP) 3.1 2.8 2.6 Education(% of GNI) 4.3 4.0 Social security and welfarp? of GDP) Net primary school enrollment rate (% of age group) Total 77 86 95 83 91 Male 89 94 96 86 92 Female 64 78 94 83 91 Access to an improvedwater source (% ofpopulation) Total a9 88 a i Urban 94 96 94 Rural 82 78 70 Immunization rate (% of children ages 12-23 months) Measles 68 81 92 78 DPT 69 86 92 84 Child malnutritior(% under 5 years) 6 11 Life expectancy at birth (Years) Total 56 64 71 69 69 Male 55 63 69 67 67 Female 57 65 72 70 71 Mortality Infant(per 7,000 live births) 143 94 39 44 32 Under 5(per 1,000) 234 134 49 54 40 Adult (15-59) Male(per 1,000population) 258 226 155 193 214 Female(per 1,000population) 201 197 119 143 135 Maternal(per 100,000live births) 140 Births attended by skilled health stam) 92 ~ ~~ ~~ ~ CAS Annex 85. This table was produced from the CMU LDB system. 06/08/05 Note 0 or 0 0 means zero or less than half the unit shown Net enrollment rate break in series between 1997 and 1998 dbertge from ISCED76 to ISCED97 Immunization refersto children ages 12-23 monthswho receivedvaccinations before p e r of age - 3 6 - CAS Annex B6 -Algeria Key Economic Indicators - Actual Estimate Proiected Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008 National accounts (as YOof GDP) Gross domesticproducf 100 100 100 100 100 100 100 100 100 Agriculture 9 11 10 10 10 9 10 10 10 Industry 60 53 53 55 57 57 54 54 55 Services 31 36 37 35 34 34 36 36 35 Total Consumption 56 58 60 55 53 48 51 55 54 Gross domestic fixed investment 22 23 25 24 25 25 25 27 29 Governmentinvestment 8 8 10 11 12 12 11 13 14 Private investment 14 14 15 13 13 14 14 15 15 ~xports(GNFS~ 42 36 35 38 41 43 41 38 37 Imports(GNFS) 21 22 26 24 25 24 26 27 28 Gross domestic savings 44 42 40 45 47 52 49 45 46 Gross nationalsaving{ 40 40 38 43 46 48 47 45 45 Memorandum items Gross domesticproduct 53,455 54,855 56,908 68,041 84,800 102,200 106,700 108,125 113,659 (US$ million at current prices) GNIper capita(US$, Atlas method) 1,580 1,660 1,720 1,930 2,190 Real annualgrowthrates (YO) Gross domesticproduct at marketprices 2.4 2.6 4.7 6.9 5.2 4.8 4.9 5.0 4.9 Real annualper capitagrowthrates (%, calculated from 1980prices) Gross domesticproduct at marketprices 0.9 1.1 3.1 5.2 3.4 3.0 3.1 3.2 3.1 Total consumption 0.9 1.2 1.5 2.1 3.6 3.1 2.6 2.6 2.7 Private consumption 0.9 1.2 1.5 2.2 4.0 3.3 2.9 2.7 2.7 Balance of Payments (US$millions) ~xports(GNFS~ 22,560 20,002 20,010 26,030 34,070 43,990 44,250 40,700 42,390 MerchandiseFOB 21,650 19,092 18,700 24,460 32,220 42,060 42,230 38,600 40,200 Imports(GNFS~ 11,700 11,920 14,490 16,240 21,810 24,710 27,220 29,560 32,070 MerchandiseFOB 9,340 9,480 12,010 13,320 17,950 20,310 22,400 24,360 26,450 Resourcebalance 10,860 8,082 5,520 9,790 12,260 19,280 17,030 11,140 10,320 Net current transfers 790 670 1,070 1,750 2,460 2,480 2,560 2,640 2,720 Current account balance 8,940 7,062 4,360 8,840 11,120 16,020 14,970 10,380 9,320 Net privateforeign direct investment 420 1,180 970 620 620 420 500 640 730 Long-termloans (net) -1,960 -1,991 -1,320 -1,380 -2,230 -1,220 -1,510 -2,010 -2,390 Other capital(net, inci.errors & ommissions) 220 -60 -360 -610 -260 -560 250 560 130 Change in reserve: -7,620 -6,191 -3,650 -7,470 -9,250 -14,660 -14,210 -9,580 -7,800 Memorandum item Resourcebalanc@t@c&iiDP) 20.3 14.7 9.7 14.4 14.5 18.9 16.0 10.3 9.1 Public finance (as % of GDP at market pricesj Current revenues 39.2 34.9 35.3 37.0 36.2 37.1 35.7 36.0 36.2 Current expenditures 21.3 22.8 24.2 22.7 19.0 16.8 16.3 16.5 16.1 Current account surplus (+) or deficit (-) 17.9 12.2 11.1 14.3 17.2 20.3 19.4 19.5 20.1 Capitalexpenditure 8.0 8.8 10.0 10.7 11.8 11.6 11.0 12.5 13.5 Foreignfinancing -2.4 -2.6 -1.7 -1.5 -1.9 -1.0 -0.9 -1.0 -1.2 Monetary indicators M2/GDP 50.3 58.4 64.0 63.8 61.5 60.7 64.7 62.3 63.0 Growth of M2(YO) 13.2 22.2 17.4 15.6 12.0 15.2 13.0 12.0 11.5 Real exchangerate (US$/LCUj 100.0 102.8 94.8 84.7 85.0 Consumerprice index (% change) 0.3 4.2 1.4 2.6 3.6 3.5 3.5 3.2 3.0 GDP deflator (YOchange) 24.0 0.8 2.2 8.5 10.4 11.3 1.2 2.0 1.6 a. GDP at factor cost b. "GNFS" denotes "goods andnonfactor services." c. Includesnet unrequitedtransfers excludingofficial capital grants. d. Includesuse of IMF resources. e. Consolidatedcentral govemment. f. "LCU" denotes "local currencyunits."An increaseinUS$/LCU denotesappreciation. - 3 7 - CAS Annex B7-Algeria Key ExposureIndicators - Total debt outstandingand 25,272 22,586 22,876 23,386 21,072 19,475 17,291 16,884 disbursed(TDO) (US$m) a Net disbursements(US$m) a -1,508 -1,787 -1,046 -992 -1,943 -1,326 -1,995 -281 Total debt service (TDS) (US$m) a 4,470 4,383 4,166 4,412 4,488 4,170 3,855 3,676 Debt anddebt service indicators("A) TDO/XGS 110.2 108.3 110.6 87.3 63.5 56.6 49.8 48.9 TDOiGDP 47.3 41.2 40.9 34.4 26.2 23.6 20.2 19.0 TDS/XGS 19.5 21.0 20.1 16.5 13.5 12.1 11.1 10.7 ConcessionaliTDO 12.4 12.2 12.4 12.9 13.0 12.8 13.0 11.7 IBRD exposureindicators(YO) IBRD DSipublic DS 6.7 6.8 7.4 6.7 5.7 5.0 5.3 5.4 Preferredcreditor DSipublic DS (%) 18.6 22.6 31.4 29.2 29.7 27.2 23.2 20.5 IBRD DS/XGS 1.3 1.4 1.5 1.1 0.8 0.6 0.6 0.6 IBRD TDO (US$m) 1425 1328 1203 1056 957 857 752 639 IFC (US$m) Loans Equity andquasi-equitye MIGA MIGA guarantees (US$m) a. Includespublic andpublicly guaranteeddebt, privatenonguaranteed,useof IMF credits andnet short- term capital. b. "XGS" denotes exports ofgoods andservices, including workers' remittances. c. Preferredcreditorsare defined as IBRD, IDA, the regionalmultilateral development banks, the IMF, andthe Bank for InternationalSettlements. d. Includespresentvalue ofguarantees. e. Includesequity and quasi-equitytypes o f bothloanandequity instruments. - 38 - CAS Annex BS (IFC) for Algeria Algeria Statementof IFC's HeldandDisbursedPortfolio As of 06/30/2005 (InUS DollarsMillion) Held Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 ABCA 0 1.51 0 0 0 1.51 0 0 2002104 ACC 45 0 0 0 43.35 0 0 0 2001 ALC 0 0.72 0 0 0 0.72 0 0 2003 Sider 25 0 0 0 25 0 0 0 Total Portfolio: 70 2.23 0 0 68.35 2.23 0 0 ApprovalsPendingCommitment Loan Equity Quasi Partic n ' - " C . O N O r , 0 0 0 0 0 0 0 c > 0 0 0 0 0 0 0 c 4 " " " N C m I m I .-2 0 et
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Algeria - Country assistance strategy progress report
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